TITLE:
Variational Form of Classical Portfolio Strategy and Expected Wealth for a Defined Contributory
AUTHORS:
Charles I. Nkeki, Chukwuma R. Nwozo
KEYWORDS:
Variational Form; Classical Portfolio Strategy; Expected Wealth; Defined Contribution; Pension Scheme; Pension Plan Member; Inter-Temporal Hedging Terms; Stochastic Salary
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.2 No.1,
February
28,
2012
ABSTRACT: This paper examines the variational form of classical portfolio strategy and expected terminal wealth for a Pension Plan Member (PPM) in a Defined Contribution (DC) Pension scheme. The flows of contributions made by PPM are invested into a market that is characterized by a cash account and a stock. It was assumed that the growth rate of salary of PPM is a linear function of time. The present value of PPM’s future contribution process was obtained. The optimal portfolio processes with inter-temporal hedging terms that offset any shocks to the stochastic cash inflows were established. The expected value of PPM’s terminal wealth was obtained.