Optimal asset allocation of pension fund under Value-at-Risk constraints

In this paper, we consider the optimal asset allocation strategy of a definedcontribution pension scheme in both accumulation phase and decumulation phase. We model the optimal problem from the view of a defined-contribution pension plan member, who is aiming at maximizing his expected utility from consumptions and bequest. Assume that pension assets can be invested into three assets: cash, stock and bonds. The optimal problem is solved in the general case where asset returns and wage growth are all stochastic and correlated. Long-term Value-at-Risk is used as the risk constraint to ensure a minimum level of replacement ratio and solvency ratio under general conditions. We process a numerical simulation to find the optimal path for investment strategies without and with risk constraints and compare the differences between the optimal investment strategies in the two cases.