Hedging Longevity Risk in Defined Contribution Pension Schemes

Pension schemes all over the world are under increasing pressure to efficiently hedge longevity risk posed by ageing populations. In this work, we study an optimal investment problem for a defined contribution pension scheme which decides using mortality-linked security, typically bond. The invests in risky assets available market, including bond, contributions from representative member ensure minimum guarantee such that is able purchase lifetime annuity upon retirement. We transform constrained into unconstrained replicating self-financing portfolio of future and provided scheme. solve resulting optimisation dynamic programming principle through series numerical studies reveal has important impact on performance strategies. Our results provide mathematical evidence supporting use securities efficient hedging risk.