Optimal Investment Strategy For Determining Contributory Pension Based On Interest Rate Risk And Value At Risk Constraint

Since 1990 s,with the deepening of population aging and the lack of pension wealth reserve,China's social pension security system began to reform.As the second pillar of China's pension security system,enterprise annuity does not give full play to its great potential and role.Enterprise annuity is a long-term investment pension plan.Employees pay a fixed contribution monthly.The pension level after retirement depends on the total contribution and investment income.The key of investment income lies in its asset allocation,which has a direct impact on the accumulated balance of pension plan.Therefore,it is of great significance to explore the operation of the defined contribution pension plan in China.Based on the existing research,interest rate risk and value at risk,we study the optimal investment strategy of contributory pension.It is assumed that the contributory pension plan adopts the government profit sharing plan,and the fund manager chooses the optimal investment strategy based on the principle of maximizing the expected utility of the employees participating in the pension plan.By using martingale method and Lagrange dual method,the explicit solutions of optimal wealth process and optimal investment strategy are obtained.The least square method and GARCH model are used to estimate the parameters,and the effects of Va R constraint and profit sharing plan on the optimal final wealth are numerically analyzed.The results show that,on the one hand,the government can guarantee the security and profitability of pension fund investment through the minimum income security system and profit sharing mechanism;On the other hand,different Va R constraint levels can be set for the managers with different risk preferences,so as to ensure that the fund managers can realize the optimal investment strategy and maximize the utility of the pension fund.