Topic: Robust dynamic derivative strategy for a DC pension plan with ambiguity, stochastic salary and volatility 

Speaker: ZENG Yan, Ling Nan College of Zhong Shan University

Time: 10:30 -12:00, Oct 31

Venue: Room 308, Tongji Building A 

Abstract

Under the two cases with and without a derivative, we explicitly solve an optimal investment problem for an ambiguity-averse defined contribution pension plan member in the presence of stochastic salary and volatility, and provide some special cases and numerical sensitivity analysis to illustrate our results. We find that ambiguities concerning stock risk and additional volatility risk may have different impacts on the optimal risk exposures to the two risks; derivatives play a major role to hedge the volatility risk; and optimal strategies contain another hedging component regarding salary risk. These results suggest that it is beneficial to reduce ambiguity and exploit derivatives for improving the member’s welfare.

Key words：Robust portfolio choice; DC pension plan; Ambiguity; Derivative; Stochastic volatility; Stochastic salary