Optimal strategies for a defined contribution pension plan with SAHARA utility under DEV model

Abstract

This paper investigates the optimal investment problems for a defined contribution pension plan in an incomplete financial market that consists of a risk-free asset anda risky asset whose price process obeys the dynamic elasticity of variance model and a correlated inflation risk model. The pension plan participant aims to maximize the expected utility of the terminal wealth under the symmetric asymptotic hyperbolic absolute risk aversion utility. This paper derives the Hamilton-Jacobi-Bellman equations and the verification results, develops lower and upper bounds for the value function, and computes optimal strategies by applying the dual control Monte Carlo algorithm. Numerical examples are presented to verify the accuracy of the approach.