Cyclical Design for Target Benefit Pension Plan

Xiaobai Zhu
Southwestern University of Finance and Economics, China
Friday, March 5, 2021 - 12:00pm to 1:00pm
Location: Zoom:

In this paper, we derived the optimal cyclical design of Target Benefit (TB) pension plan. We focused on the stability of the benefit payment, and formulated an optimal control problem using a regime-switching model. We drew a number of remarks to improve the readability of our explicit solution, and made simplifications to enhance the transparency of the risk sharing design. We provided a new yet natural interpretation for a commonly used parameter under the TB context. We highlighted that cautions must be made when studying TB design using optimal control theory. Our numerical result suggested that a 100/0 investment strategies is preferred for the robustness of TB design, and the risk sharing mechanism should include both counter- and pro-cyclical components.

Bio: For my personal information, my full name is Xiaobai Zhu, I am assistant professor at School of Insurance, Southwestern University of Finance and Economics, China, my research interest is on hybrid pension plans and longevity modelling.