Optimal investment-consumption problem: post-retirement with minimum guarantee

DOI10.1016/J.INSMATHECO.2020.07.006zbMATH Open1457.91327arXiv1803.00611OpenAlexW2790179260MaRDI QIDQ2212151FDOQ2212151

Authors: Hassan Dadashi 

Publication date: 19 November 2020

Published in: Insurance Mathematics \& Economics (Search for Journal in Brave)

Abstract: We study the optimal investment-consumption problem for a member of defined contribution plan during the decumulation phase. For a fixed annuitization time, to achieve higher final annuity, we consider a variable consumption rate. Moreover, to have a minimum guarantee for the final annuity, a safety level for the wealth process is considered. To solve the stochastic optimal control problem via dynamic programming, we obtain a Hamilton-Jacobi-Bellman (HJB) equation on a bounded domain. The existence and uniqueness of classical solutions are proved through the dual transformation. We apply the finite difference method to find numerical approximations of the solution of the HJB equation. Finally, the simulation results for the optimal investment-consumption strategies, optimal wealth process and the final annuity for different admissible ranges of consumption are given. Furthermore, by taking into account the market present value of the cash flows before and after the annuitization, we compare the outcomes of different scenarios.

Full work available at URL: https://arxiv.org/abs/1803.00611

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zbMATH Keywords

HJB equationdecumulation phasedefined contribution planpolicy iteration methodfinal annuity guarantee

Mathematics Subject Classification ID

Actuarial mathematics (91G05) Finite difference methods for boundary value problems involving PDEs (65N06) Optimal stochastic control (93E20)

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Cited In (6)

• Optimal consumption and portfolio selection for retirees with the guarantee of minimum welfare
• Income drawdown option with minimum guarantee
• Optimal consumption, investment and housing with means-tested public pension in retirement
• Optimal Initiation of Guaranteed Lifelong Withdrawal Benefit with Dynamic Withdrawals
• Title not available (Why is that?)
• Optimal investment strategy post retirement without ruin possibility: a numerical algorithm

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