Abstract
We investigate the DC pension manager’s portfolio problem when the manager is remunerated through two schemes for DC pension managerial compensation under loss aversion and minimum guarantee. We apply the concavification technique and a static Lagrangian technique to solve the problem and derive the closed-form representation of the optimal wealth and portfolio processes. Theoretical and numerical results show that the incentive schemes can significantly impact the distribution of the optimal terminal wealth.
Highlights
As special financial institutions, risk management of insurance companies is the important guarantee of business security
E impact of the performance of a fund with respect to a benchmark on the asset management has been extensively investigated recently. e managers are often paid by an incentive scheme that depends on the performance of the fund they manage in order to inspire them to greater efforts
Such a scheme is made up of two components: a management fee, which is proportional to the fund wealth, and an incentive fee which is composed of a combination of some options on the fund, see, for example, Basek et al [13, 14], Carpenter [15], Basak et al [16], and Chen and Pennacchi [17]
Summary
Risk management of insurance companies is the important guarantee of business security. Ey compare the utilities of both fund managers and members under the two schemes and they state the win-win situation of implementing performance-based incentives in DC pension plan management. He et al [18] consider the PI constraint, which can well protect the members’ benefits by keeping the optimal terminal wealth always above the minimum guarantee, see Basek and Shapiro [13]. Dong and Zheng [5, 6] and Guan and Liang [21] investigated the optimal allocation of the DC pension plan under loss aversion, they do not consider the remuneration schemes of DC pension.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.