Abstract
In this paper, we investigate an optimal investment strategy for defined-contribution (DC) pension plan under hybrid stochastic volatility (Heston–Hull–White) model, taking account of the inflation risk and the stochastic salary. The fund wealth is invested in financial market consisting of a risk-free asset, an inflation-indexed bond and a stock with hybrid Heston–Hull–White model. The goal of the pension fund manager is to maximize the expected utility of the terminal real wealth. We derive the Hamilton–Jacobi–Bellman (HJB) equation through the dynamic programming principle, under the constant relative risk aversion (CRRA) utility function, the optimal investment strategy is obtained. Finally, a numerical example is presented to characterize the impacts of financial parameters on the optimal investment strategy.
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