Modeling a Dynamic Portfolio for Pension Plans in Emerging Markets With Myopic and Nonmyopic Behavior

Livia F. Pimentel, Leonardo Santiago

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

We introduce a dynamic formulation for the problem of portfolio selection of pension funds in the absence of a risk-free asset. In emerging markets, a risk-free asset might be unavailable, and the approaches commonly used may no longer be suitable. We use a parametric approach to combine dynamic programming and Monte Carlo simulation to gain additional flexibility. This approach is general in the sense that optimal asset allocation is tractable for all HARA utility functions in the absence of a risk-free asset. The traditional case composed of several risky assets and one risk-free asset is compared to a case in which the risk-free asset is unavailable.
Original languageEnglish
JournalEmerging Markets Finance & Trade
Volume51
Issue numberSupplement 6
Pages (from-to)S14-S26
ISSN1540-496X
DOIs
Publication statusPublished - 2015

Keywords

  • Monte Carlo simulation
  • Parametric methods
  • Pension plan
  • Portfolio selection
  • Stochastic dynamic programming

Cite this

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abstract = "We introduce a dynamic formulation for the problem of portfolio selection of pension funds in the absence of a risk-free asset. In emerging markets, a risk-free asset might be unavailable, and the approaches commonly used may no longer be suitable. We use a parametric approach to combine dynamic programming and Monte Carlo simulation to gain additional flexibility. This approach is general in the sense that optimal asset allocation is tractable for all HARA utility functions in the absence of a risk-free asset. The traditional case composed of several risky assets and one risk-free asset is compared to a case in which the risk-free asset is unavailable.",
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Modeling a Dynamic Portfolio for Pension Plans in Emerging Markets With Myopic and Nonmyopic Behavior. / Pimentel, Livia F.; Santiago, Leonardo .

In: Emerging Markets Finance & Trade, Vol. 51, No. Supplement 6, 2015, p. S14-S26.

Research output: Contribution to journalJournal articleResearchpeer-review

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AU - Santiago, Leonardo

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KW - Parametric methods

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