Optimal Asset Allocation of Pension Funds with a Portfolio Constraint Change |
Jongho Park1, Bong-Gyu Jang2 |
1Ph.D Candidate, Pohang University of Science and Technology 2Professor, Pohang University of Science and Technology |
투자비중 제약조건 변화에 따른 연기금의 자산배분 |
박종호1, 장봉규2 |
1포항공과대학교 박사과정 2포항공과대학교 교수 |
Correspondence:
Bong-Gyu Jang, Tel: 054-279-3372, Email: bonggyujang@postech.ac.kr |
Received: 30 April 2024 • Revised: 10 July 2024 • Accepted: 1 August 2024 |
Abstract |
We investigated the asset allocation problem of a pension fund in which the constraints on the risky investment proportion change owing to local regulations or the fund’s policy changes. We assumed that the fund manager has a utility function with respect to the funding ratio of the pension fund. A dynamic programming approach was employed and we obtained a closed-form solution to the problem. To numerically measure the effect of such changes on asset allocation, we define the concept of policy change equivalent return (PCER) as the additional expected return for the value function of the case without such changes at the same level as the value function of the case with them. In the numerical analysis, we analyzed both the effect of regime switching on market parameters and policy change on the PCER and showed the effectiveness of introducing policy changes to asset allocation. |
Key Words:
Pension Fund, Funding Ratio, Investment Constraint Change, Dynamic Programming, Policy change equivalent Return |