Optimal dynamic asset allocation for DC plan accumulation/decumulation: ambition-CVaR. (English) Zbl 1447.91137

Summary: We consider the late accumulation stage, followed by the full decumulation stage, of an investor in a defined contribution (DC) pension plan. The investor’s portfolio consists of a stock index and a bond index. As a measure of risk, we use conditional value at risk (CVaR) at the end of the decumulation stage. This is a measure of the risk of depleting the DC plan, which is primarily driven by sequence of return risk and asset allocation during the decumulation stage. As a measure of reward, we use Ambition, which we define to be the probability that the terminal wealth exceeds a specified level. We develop a method for computing the optimal dynamic asset allocation strategy which generates points on the efficient ambition-CVaR frontier. By examining the ambition-CVaR efficient frontier, we can determine points that are median-CVaR optimal. We carry out numerical tests comparing the median-CVaR optimal strategy to a benchmark constant proportion strategy. For a fixed median value (from the benchmark strategy) we find that the optimal median-CVaR control significantly improves the CVaR. In addition, the median allocation to stocks at retirement is considerably smaller than the benchmark allocation to stocks.


91G05 Actuarial mathematics
91G10 Portfolio theory
91G70 Statistical methods; risk measures
Full Text: DOI


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