Dynamic Life Cycle Investing

Master thesis (2019)

Authors

T.R.B. den Haan Electrical Engineering, Mathematics and Computer Science

Contributors

C.W. Oosterlee Numerical Analysis - EEMCS (supervisor 1)
Martin van der Schans Ortec Finance (supervisor 1)
J.W. van der Woude Mathematical Physics - EEMCS (supervisor 2)
K.W. Chau Numerical Analysis - EEMCS (supervisor 2)
Faculty
Electrical Engineering, Mathematics and Computer Science
Copyright: © 2019 Tim den Haan
Dynamic Programming Smoothing Pension investor Portfolio optimization Rule-based control
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Published Date

12-06-2019

Language

English

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Faculty

Electrical Engineering, Mathematics and Computer Science

Abstract

This thesis studies the asset allocation of a DC pension investor over a long time horizon. Investors allocate their portfolio wealth between two assets: a return portfolio and a matching portfolio. Investors can adjust their allocation once a year. Several dynamic investment strategies that improve investment results compared to fixed allocations or static life cycles are shown. The dynamic investment strategies have been constructed by using two different approaches. The first approach is rule-based and defines intermediate wealth targets for every year in the investment horizon. Investment decisions are taken based on performance compared to these targets. The second approach involves a dynamic programming algorithm. The asset allocation over time is not always stable when using dynamic programming. Methods to smooth the asset allocation over time and improve stability are discussed. Last, both approaches are combined in one strategy.

Files

Thesis_report.pdf
(.pdf | 1.14 Mb)