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Heinz Müller
Former Member
Title
Prof. em. Dr.
Last Name
Müller
First name
Heinz
Phone
+41 71 224 2432
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PublicationOptimal Design of the Attribution of Pension Fund Performance to EmployeesThe article analyzes risk sharing in 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. For each attribution scheme, the pension fund maximizes the expected utility and the employees derive utility from their savings accounts. It turns out that all Pareto-optimal attribution schemes are characterized by the same optimal participation rate. We derive the total welfare gain that installs from replacing no participation with optimal participation. This welfare gain can be quantified and is substantial for reasonable parameter values.Type: journal articleJournal: The Journal of Risk and InsuranceVolume: 81Issue: 2
Scopus© Citations 1 -
PublicationShortfall Minimizing PortfoliosMany institutional and private investors seek for a long run excess return relative to a reference strategy (e.g. money market, bond index, etc.) which they want to attain under a minimal shortfall probability. In this article it is shown that even in the long run in order to attain a substantial excess retum a high shortfall probability has to be accepted. In the model the prices of the assets follow geometric Brownian motions. Two types of a shortfall are distinguished. A shortfall of type I occurs, if at some point of time the investment goal is missed by a given percentage. There is a shortfall of type II, if the investment goal is missed at the end of the planning horizon. To begin with, only constant portfolio weights are admitted. For both types it can be shown that minimizing the shortfall probability under a given excess return is equivalent to the Merton problem. Under realistic parameter values moderate shortfall probabilities are only compatible with very bw excess returns. Finally, it is shown, that "Constant Proportion Portfolio Insurance" (CPPI) does not lead to a reduction of the shortfall probability.Type: journal articleJournal: SAV BulletinVolume: 02
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PublicationA Life Cycle Model with Pension Benefits and TaxesA life cycle model with pension benefits and taxes is analyzed by means of stochastic control. In the phase of employment an individual earns a stochastic income, contributes to a pension plan and chooses an optimal consumption and investment strategy under a tax system. At the end of the phase of employment the individual decides to fully or partially withdraw capital from the pension plan or to retire with no reduced pension benefits. During retirement an optimal consumption and investment strategy is chosen. It is shown that the individual profits from the financial protection against the uncertainty of her life span. Further, the decision on partial or full capital withdrawal from the pension fund depends crucially on the specification of the tax scheme. Under a uniform linear tax scheme and a fair pension benefit there will be no capital withdrawal. Under a more sophisticated tax scheme no, partial or full withdrawal may occur.Type: working paper