On the Modified Optimal Investment Strategy for Annuity Contracts under the Constant Elasticity of Variance (CEV) Model

Njoku, K. N. C.; Osu, Bright O.

doi:10.34198/ejms.1119.6390

Cited by 2 publications

(3 citation statements)

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“…Considering the dual relationship between pension wealth, it follows that the optimal strategy will appreciate frictionless, which is unrealistic. There exists a modifying factor which depends on time, only, just like in [13] and this modifying factor controls investment decision of the PPM. From proposition 4.4.1 in [14], result shows that the elastic parameter, β is not equal to 1 (the elastic parameter β 1 ).…”

Section: Discussionmentioning

confidence: 99%

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On the Investment Strategy, Effect of Inflation and Impact of Hedging on Pension Wealth during Accumulation and Distribution Phases

Osu

Njoku

Oruh

2020

J. Nig. Soc. Phys. Sci.

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This paper studies the various results obtained in literature on the investment strategy, the effect of inflation and impact ofh edging on the Pension Wealth generation. The explicit solution of the constant relative risk aversion (CRRA) and constant absolute risk aversion (CARA) utility functions are obtained, both in the accumulation and distribution phase, using Legendre transform, dual theory, and change of variable techniques. It is established herein that the elastic parameter (beta) is not equal to one (beta neq 1), based on the assumption of our model. Theorems are constructed and proved on the various wealth investment strategies. Observations and significant results are made and obtained, respectively in the comparison of our various utility functions and some previous results in literature. Sensitivity analysis and Simulations on the various utility functions and optimal strategies during the accumulation and distribution phase are presented; when the existence of a elastic parameter that is not equal to one, when there is existence of modifying factors, when there is need for diversification of investment, when there is no significant effect of the choice of risk aversion strategy on investment returns during inflation period, when there is hedging ability of Inflation indexed Bond and Inflation-linked Stock and when there is insignificant effect of the orthogonal relationship between stock and time and nonpayment of pension benefits on the satisfaction of the investors.

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Section: Discussionmentioning

confidence: 99%

“…Theorem 1 [13] : Let f : R n → R be a convex function for z > 0, then the Legendre transform is defined as;…”

Section: Legendre Transformationmentioning

confidence: 99%

On the Investment Strategy, Effect of Inflation and Impact of Hedging on Pension Wealth during Accumulation and Distribution Phases

Osu

Njoku

Oruh

2020

J. Nig. Soc. Phys. Sci.

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“…Njoku and Osu [15] worked on the optimal pension wealth investment strategy during the decumulation phase, in a defined contribution (DC) pension scheme where the pension plan member was allowed to invest in a risk free and a risky asset, under the constant elasticity of variance (CEV) model. The explicit solution of the constant relative risk aversion (CRRA) and constant absolute risk aversion (CARA) utility functions were obtained, using Legendre transform, dual theory, and change of variable methods.…”

Section: Introductionmentioning

confidence: 99%

Investor’s Optimal Strategy with and Without Transaction Cost Under Ornstein-Uhlenbeck and Constant Elasticity of Variance (CEV) Models Via Exponential Utility Maximization

Ihedioha¹,

Danat²,

Buba³

2020

PAMJ

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In this work, we studied the optimal investment problem of an investor who had exponential utility preference and traded two assets; (1) a risky asset which price dynamics was governed by the Constant Elasticity of variance (CEV) model and (2) a risk-free asset which price system followed the Ornstein-Uhlenbeck model. We employed the maximum principle of dynamic programming to obtain the Hamilton-Jacobi-Bellman (H-J-B) equation on which the first principle and the elimination of variable dependency were applied to get the closed-form of the investor's optimal strategies. Two scenarios where the Brownian motions correlated and where they did not correlate were investigated. Also considered were the cases of when transaction cost was involved and when transaction cost was not involved. This lead to six cases that among the results obtained was that the investor has an optimal investment strategy that requires more amount of money for investment when the Brownian motions do not correlate and there is transaction cost than when the Brownian motions correlate and there is no transaction.

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On the Modified Optimal Investment Strategy for Annuity Contracts under the Constant Elasticity of Variance (CEV) Model

Cited by 2 publications

References 0 publications

On the Investment Strategy, Effect of Inflation and Impact of Hedging on Pension Wealth during Accumulation and Distribution Phases

On the Investment Strategy, Effect of Inflation and Impact of Hedging on Pension Wealth during Accumulation and Distribution Phases

Investor’s Optimal Strategy with and Without Transaction Cost Under Ornstein-Uhlenbeck and Constant Elasticity of Variance (CEV) Models Via Exponential Utility Maximization

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