Net Contribution, Liquidity, and Optimal Pension Management

Jounal of Risk and Insurance, Forthcoming

Posted: 25 Aug 2013 Last revised: 25 Nov 2015

See all articles by Changhui Choi

Changhui Choi

Korea Insurance Research Institute

Bong-Gyu Jang

Pohang University of Science and Technology (POSTECH)

Changki Kim

Korea University Business School (KUBS)

Sang-youn Roh

National Pension Service, NPRI

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Date Written: August 25, 2013

Abstract

This paper presents an optimal portfolio balancing strategy for a pension fund manager in the presence of fixed and proportional transaction costs for trading stocks and changes in net contribution. An analytic solution to the one-period problem is presented and a heuristic method for a multi-period problem is developed. For reasonably-calibrated parameters, we find that our numerical results explain the actual asset allocation schemes of some internationally-renowned pension funds well. Furthermore, we also find that net contribution and liquidity have significant impacts on the theoretical optimal asset allocation of a pension fund.

Keywords: transaction cost, asset allocation, pension management, net contribution, liquidity

JEL Classification: C61, G11, G23

Suggested Citation

Choi, Changhui and Jang, Bong-Gyu and Kim, Changki and Roh, Sang-youn, Net Contribution, Liquidity, and Optimal Pension Management (August 25, 2013). Jounal of Risk and Insurance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2315685 or http://dx.doi.org/10.2139/ssrn.2315685

Changhui Choi

Korea Insurance Research Institute ( email )

35-4 Yoido, Youngdeungpo
Seoul, 150600
Korea, Republic of (South Korea)

Bong-Gyu Jang (Contact Author)

Pohang University of Science and Technology (POSTECH) ( email )

77 Cheongam-ro
Pohang
Korea, Republic of (South Korea)

Changki Kim

Korea University Business School (KUBS) ( email )

Anam-Dong, Seongbuk-Gu
Seoul 136-701, 136701
Korea
82.2.3290.2628 (Phone)

HOME PAGE: http://biz.korea.ac.kr/professor/changki-kim

Sang-youn Roh

National Pension Service, NPRI ( email )

128, Dosan daero Gangnamgu
Seoul, 135-811
Korea, Republic of (South Korea)

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