Now showing 1 - 3 of 3
  • Publication
    Optimal Design of the Attribution of Pension Fund Peformance to Employees
    (Center for Finance Universität St. Gallen, 2009) ;
    The paper analyses a defined-contribution pension fund in continuous time. According to a prespecified attribution scheme the interest rate paid on the employees' accounts is a linear function of the fund's investment performance. An attribution scheme consists of a articipation rate and an intercept. For each attribution scheme the pension fund maximises the expected utility of the funding ratio at the end of a planning horizon and the employees derive utility from their savings accounts at the time they exit the plan. Solving the optimisation problem of the pension fund leads to constant optimal investment strategies. For the pension fund and the employees, respectively, indirect utility functions can be derived on the set of attributions. It turns out that all Pareto-optimal attribution schemes are characterised by the same optimal participation rate. As a main result, we derive the total welfare gain - measured by the increase in appropriate certainty equivalents of the pension fund and the employees, respectively - that installs from replacing no participation with optimal participation. For reasonable parameter values a substantial increase in the risk-adjusted rate of return on employees' accounts can be achieved if the welfare gain is fully attributed to the employees.
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  • Publication
    Optimal Strategies During Retirement
    (www.finance.unisg.ch, 2008)
    The present paper studies a pensioner deriving utility from a stream of consumption or an annuity and from bequeathing wealth to his heirs in a continuous-time framework. The task of finding the pensioner's optimal consumption, asset allocation and annuity decision rule leads to the interesting interplay of optimal control theory, optimal stopping theory and mortality issues or, technically speaking, to a combined optimal stopping and optimal control problem (COSOCP). Stabile (2006) solved this problem in an all-or-nothing framework assuming exponential mortality and power utility functions. In this paper we extend his model in several dimensions: We contribute the essential inclusion of a bequest motive, we additionally study the economically interesting range of relative risk aversion levels greater than one and we provide a new solution method for the COSOCP via duality arguments. For identical risk aversion levels Stabile (2006) finds that the pensioner either annuitises immediately or never which means that COSOCP reduces to a trivial or to a pure optimal control problem. In contrast to this the annuitisation decision rule can become wealthdependent in our more general model and consequently, a real COSOCP has to be dealt with. The main result is that longevity risk matters very much (quite attractive annuity market) even if we allow for a bequest motive.
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  • Publication
    Mixed Matching Markets
    ( 2008) ;
    Hochstättler, Winfried
    ;
    Nickel, Robert
    We introduce a new model for two-sided markets that generalizes sta- ble marriages as well as assignment games. Our model is a further gen- eralization of the model introduced by Eriksson and Karlander (2000). We prove that the core of our model is always non-empty by providing an algorithm that determines a stable solution in O(n^4).