On "optimal pension management in a stochastic framework" with exponential utility

Research output: Journal PublicationArticlepeer-review

20 Citations (Scopus)


This paper reconsiders the optimal asset allocation problem in a stochastic framework for defined-contribution pension plans with exponential utility, which has been investigated by Battocchio and Menoncin [Battocchio, P., Menoncin, F., 2004. Optimal pension management in a stochastic framework. Insurance: Math. Econ. 34, 79-95]. When there are three types of asset, cash, bond and stock, and a non-hedgeable wage risk, the optimal pension portfolio composition is horizon dependent for pension plan members whose terminal utility is an exponential function of real wealth (nominal wealth-to-price index ratio). With market parameters usually assumed, wealth invested in bond and stock increases as retirement approaches, and wealth invested in cash asset decreases. The present study also shows that there are errors in the formulation of the wealth process and control variables in solving the optimization problem in the study of Battocchio and Menoncin, which render their solution erroneous and lead to wrong results in their numerical simulation.

Original languageEnglish
Pages (from-to)61-69
Number of pages9
JournalInsurance: Mathematics and Economics
Issue number1
Publication statusPublished - Jul 2011


  • Defined-contribution pension plan
  • Exponential utility
  • Hamilton-Jacobi-Bellman equation
  • Inflation
  • Optimal asset allocation
  • Wage risk

ASJC Scopus subject areas

  • Statistics and Probability
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty


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