Optimal Asset Allocation For DC Pension Fund Under Inflation

With the further development of aging of population, the deepening of corrosiondegree of inflation on the pension, preserve or increase the value of pesion is widelyconcerned.How to cope with the inflation risk in pesion investments, combine saftytogether with investment profit become the important topic of national stability andsocial development.Based on the fund income and inflation risk, academia has made a lot of researchon the aseet allocation of pesion.On this basis, this paper combines pension inflationrisk and minimum guarantee, uses the CIR dynamics to describe the nominal interestrate madel, includes the inflation indexed bond in the asset menu to cope with theinflation risk, uses the stochastic dynamic programming approach to investigate theoptimal asset allocation for a defined-contribution pension plan.The closed-formsolution is derived under the CRRA utility function.The dynamic optimal investmentstrategy is characterized by numerical analysis.In this paper, stocks, nominal bonds, indexed bonds and cash are considered asfour types of asset menu in the financial markets, modeling them respectively.Through building the optimal asset allocation model for a defined-contribution pesion,using MATLAB software for numerical analysis, this paper research the investmentstrategy of defined-contribution pesion participants.The results of the study are asfollows:(1) The weights on stocks and nominal bonds decrease over time while theweights on inflation indexed bonds and cash increase over time.(2) Inflation indexed bonds will play an important role in the portfolio of riskaversion DC pesion plan participants.(3) Along with the rising of risk aversion coefficient, investing in risky assetswill decrease significantly, and the proportion of cash assets will rise.(4) As the growth age of pension participants, the decrese of the remaininginvestment period, risk tolerance of participants will reduce,the proportion of riskyaseets will be more and more low.The results show that inflation indexed bonds issue and inflation indexed bondmarket development will help to improve and pertect the pension funds.