The optimal investment strategy of a DC pension plan under deposit loan
spread and the Ornstein-Uhlenbeck process
Abstract
This paper is devoted to invest an optimal investment strategy for a
defined-contribution (DC) pension plan under the Ornstein-Uhlenbeck
(O-U) process and the loan. By considering risk-free asset, a risky
asset driven by O-U process and a loan in the financial market, we
firstly set up the dynamic equation and the asset market model which are
instrumental in achieving the expected utility of ultimate wealth at
retirement. Secondly, the corresponding Hamilton-Jacobi-Bellman(HJB)
equation is derived by means of dynamic programming principle. The
explicit expression for the optimal investment strategy is obtained by
Legendre transform method. Finally, different parameters are selected to
simulate the explicit solution and the financial interpretation of the
optimal investment strategy is given.