On Investment Model for a CARA Pension Scheme Member with Return of Contributions Clause for Mortgage Housing Scheme

Authors

  • Ase M. Esabai

    Federal University Otuoke, Bayelsa State
    Author
  • Edikan E. Akpanibah

    Federal University Otuoke, Bayelsa State
    Author
  • Sylvanus K. Samaila

    Federal University Otuoke, Bayelsa State
    Author

Keywords:

Optimal investment distribution,, pension scheme member, , Ito’s lemma, , Mortgage Housing Scheme, , Return Clause

Abstract

This paper investigates a pension scheme member’s (PSM) portfolio in a defined contributory (DC) pension plan with a return of premium for mortgage scheme and charge on balance(CB) for time-consistent utility. A portfolio with one risk-free asset and two risky assets which are modelled using the geometric Brownian motion (GBM) process is considered, such that the instantaneous volatilities of the risky assets form a 2×2 positive definite matrix m={m_ab }_(2X2.) with mm^T. The PSMs interested in the mortgage housing scheme are modelled using Abraham De Moivre’s force function, and the optimization problem is obtained using a dynamic programming approach. Using Legendre transformation and dual theory with variable change technique, the optimal value function (OVF), and optimal investment distribution (OID) are obtained for a PSM with utility function exhibiting constant absolute risk averse (CARA). Furthermore, some numerical analyses were carried out and was observed that factors such as risk-free interest rate, risk-averse coefficient, entry age of PSM, initial wealth and CB were critical in developing an OID with this kind of return clause. 

Author Biographies

  • Ase M. Esabai , Federal University Otuoke, Bayelsa State

    Department of Mathematics and Statistics, Federal University Otuoke, P.M.B 126, Bayelsa, Nigeria

  • Edikan E. Akpanibah, Federal University Otuoke, Bayelsa State

    Department of Mathematics and Statistics, Federal University Otuoke, P.M.B 126, Bayelsa, Nigeria

  • Sylvanus K. Samaila , Federal University Otuoke, Bayelsa State

    Department of Mathematics and Statistics, Federal University Otuoke, P.M.B 126, Bayelsa, Nigeria..

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Published

2024-06-30

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