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Variational Form of Classical Portfolio Strategy and Expected Wealth for a Defined Contributory

Author(s): Chukwuma R. Nwozo | Charles I. Nkeki

Journal: Advances in Molecular Imaging
ISSN 2161-6728

Volume: 02;
Issue: 01;
Start page: 132;
Date: 2012;
Original page

Keywords: Variational Form | Classical Portfolio Strategy | Expected Wealth | Defined Contribution | Pension Scheme | Pension Plan Member | Inter-Temporal Hedging Terms | Stochastic Salary

This paper examines the variational form of classical portfolio strategy and expected terminal wealth for a Pension Plan Member (PPM) in a Defined Contribution (DC) Pension scheme. The flows of contributions made by PPM are invested into a market that is characterized by a cash account and a stock. It was assumed that the growth rate of salary of PPM is a linear function of time. The present value of PPM’s future contribution process was obtained. The optimal portfolio processes with inter-temporal hedging terms that offset any shocks to the stochastic cash inflows were established. The expected value of PPM’s terminal wealth was obtained.

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