Rule-based strategies for dynamic life cycle investment

Rule-based strategies for dynamic life cycle investment

den Haan, T.R.B. (TU Delft Delft Institute of Applied Mathematics; Ortec Finance)
Chau, K. W. (Rijksuniversiteit Groningen)
van der Schans, M. (Ortec Finance)
Oosterlee, C.W. (Universiteit Utrecht; Centrum Wiskunde & Informatica (CWI))

Delft Institute of Applied Mathematics

2022

In this work, we consider rule-based investment strategies for managing a defined contribution pension savings scheme, under the Dutch pension fund testing model. We find that dynamic, rule-based investment strategies can outperform traditional static strategies, by which we mean that the investor may achieve the target retirement income with a higher probability or limit the shortfall when the target is not met. In comparison with dynamic programming-based strategies, the rule-based strategies have more stable asset allocations throughout time and avoid excessive transactions that may be hard to explain to an investor. We also study a combined strategy of a rule-based target with dynamic programming. A key feature of our setting is that there is no risk-free asset, instead, a matching portfolio is introduced for the investor to avoid unnecessary risk.

Defined contribution
Dynamic programming
Life cycle investing
Pensions
Rule-based strategies

http://resolver.tudelft.nl/uuid:4a552577-bdec-4a58-bd52-528835f951ad

https://doi.org/10.1007/s13385-021-00283-0

2190-9733

European Actuarial Journal, 12 (1), 189-213

Institutional Repository

journal article

© 2022 T.R.B. den Haan, K. W. Chau, M. van der Schans, C.W. Oosterlee