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Analysis of Pension Strategies
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematical Statistics.
2014 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesisAlternative title
Analys av pensionsstrategier (Swedish)
Abstract [en]

In a time where people tend to retire earlier and live longer in combination with an augmented personal responsibility of allocating or at least choosing adequately composed pension funds, the importance of a deeper understanding of long term investment strategies is inevitably accentuated. On the background of discrepancies in suggested pension fund strategies by influential fund providers, professional advisers and previous literature, this thesis aims at addressing foremost one particular research question: How should an investor optimally allocate between risky and risk-less assets in a pension fund depending on age? In order to answer the question the sum of Human wealth, defined as the present value of all expected future incomes, and ordinary Financial wealth is maximized by applying a mean-variance and a expected utility approach. The latter, and mathematically more sound method yields a strategy suggesting 100% of available capital to be invested in risky assets until the age of 47 whereafter the portion should be gradually reduced and reach the level of 32% at the last period before retirement. The strategy is clearly favorable to solely holding a risk-free asset and it just outperforms the commonly applied "100 minus age"-strategy.

Place, publisher, year, edition, pages
2014.
Series
TRITA-MAT-E, 2014:18
Keyword [en]
Human wealth, Mean-variance, Stochastic dynamic programming
National Category
Probability Theory and Statistics
Identifiers
URN: urn:nbn:se:kth:diva-143342OAI: oai:DiVA.org:kth-143342DiVA: diva2:708226
Subject / course
Mathematical Statistics
Educational program
Master of Science - Mathematics
Supervisors
Examiners
Available from: 2014-03-27 Created: 2014-03-19 Last updated: 2014-03-27Bibliographically approved

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