Numerical Solutions to Lump-Sum Pension Fund Problems that Can Yield Left-Skewed Fund Return Distributions

OPTIMAL CONTROL AND DYNAMIC GAMES, C. Deissenberg, R.F. Hart, eds., pp. 155-176, 2005

Posted: 13 Jan 2010

Multiple version iconThere are 2 versions of this paper

Date Written: 2005

Abstract

The paper is about pension fund problems where an agent pays an amount x0 to the fund manager and is repaid, after time T, a lump sum x(T). Such problems admit an analytical solution for specific, rather unrealistic formulations. Several practical pension fund problems are converted in the paper into Markov decision chains solvable through approximations. In particular, a couple of problems with a non-differentiable asymmetric (with respect to risk) utility function are solved, for which left-skewed fund-return distributions are reported. Such distributions ascribe more probability to higher payoffs than the right-skewed ones that are common among analytical solutions.

Keywords: Pension funds, Agent, Manager, Markov, Utility function

JEL Classification: C61, D92, G11

Suggested Citation

Krawczyk, Jacek B., Numerical Solutions to Lump-Sum Pension Fund Problems that Can Yield Left-Skewed Fund Return Distributions (2005). OPTIMAL CONTROL AND DYNAMIC GAMES, C. Deissenberg, R.F. Hart, eds., pp. 155-176, 2005 , Available at SSRN: https://ssrn.com/abstract=1535605

Jacek B. Krawczyk (Contact Author)

Victoria University of Wellington ( email )

P.O. Box 600
Wellington 6001
New Zealand
+64-4-4721000 x 8553 (Phone)
+64-4-4955014 (Fax)

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