Net Contribution, Liquidity, and Optimal Pension Management

36 Pages Posted: 11 Nov 2016

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 Research Institute

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Date Written: December 2016

Abstract

This article presents an optimal portfolio balancing strategy for a pension fund manager in the presence of fixed and proportional transaction costs with respect to stock trades and changes in net contribution. An analytic solution to the one‐period problem is presented and a heuristic method for a multiperiod 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. Moreover, we show that net contribution and liquidity have significant impacts on the optimal asset allocation of a pension fund.

Suggested Citation

Choi, Changhui and Jang, Bong-Gyu and Kim, Changki and Roh, Sang-youn, Net Contribution, Liquidity, and Optimal Pension Management (December 2016). Journal of Risk and Insurance, Vol. 83, Issue 4, pp. 913-948, 2016. Available at SSRN: https://ssrn.com/abstract=2867718 or http://dx.doi.org/10.1111/jori.12072

Changhui Choi (Contact Author)

Korea Insurance Research Institute ( email )

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

Bong-Gyu Jang

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 Research Institute ( email )

Seoul
Korea, Republic of (South Korea)

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