Author(s)

Oteng Keganneng, Othusitse Basimanebotlhe

University of Botswana, Gaborone, Botswana.

This paper investigates the optimal control of asset allocation on a defined contribution pension plan. In our model, the plan member is allowed to invest in a risk-free asset (bank account), a risky asset (stock) and an inflation-linked bond. The dynamics of the wealth in our model take into account a certain proportion of the client’s salary paid as the contribution towards the pension fund. By applying the Hamilton-Jacobi-Bellman equation we find the explicit solutions for the CARA and CRRA utility functions. This helps us to calculate the investment strategies associated with the stock and inflation-linked bond. Finally, a numerical simulation is presented to illustrate the behaviour of the model.

Asset Allocations, Defined Contribution, Defined Benefit Pension Fund, Stochastic Salary, Brownian Motion, Utility Function, Power Utility, Optimal Portfolio, Stochastic Optimal Control, Hamilton-Jacobi-Bellman Equation

Keganneng, O. and Basimanebotlhe, O. (2022) Optimal Control of Assets Allocation on a Defined Contribution Pension Plan. Open Access Library Journal, 9, 1-17. doi: 10.4236/oalib.1107970.