Effect of death rate in determining the optimal investment strategies for defined contribution (DC) pension fund with multiple contributors

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Abstract

The effect of death rate in determining the optimal investment strategies for defined contribution (DC) pension fund with multiple contributors was investigated using a modified model. We assume a case where the wealth of death pensioners is not added to the pension wealth and also when their wealth is added to pension wealth. Using this model we obtained optimized problems for the two assumptions using Jacobi Hamilton equation and solve the problems using Legendre transform to obtain an explicit solution of the optimal investment strategies for CARA utility function. We observed that the optimal investment strategies with the death pensioners’ wealth is greater compared to one without their wealth. This model has shown that the wealth of the death pensioners has an effect on the overall investment strategies hence the pension manager makes more interest with the surplus from the death pensioners’ wealth and loses more if the investment fails.

Keywords: Death rate, Defined contribution, Optimal investment strategy, Legendre transform,

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