{"title":"Explicit Solution of an Investment Plan for a DC Pension Scheme with Voluntary Contributions and Return Clause under Logarithm Utility","authors":"Promise A. Azor, Avievie Igodo, Esabai M. Ase","volume":200,"journal":"International Journal of Physical and Mathematical Sciences","pagesStart":115,"pagesEnd":122,"ISSN":"1307-6892","URL":"https:\/\/publications.waset.org\/pdf\/10013228","abstract":"<p>The paper merged the return of premium clause and voluntary contributions to investigate retirees\u2019 investment plan in a defined contributory (DC) pension scheme with a portfolio comprising of a risk-free asset and a risky asset whose price process is described by geometric Brownian motion (GBM). The paper considers additional voluntary contributions paid by members, charge on balance by pension fund administrators and the mortality risk of members of the scheme during the accumulation period by introducing return of premium clause. To achieve this, the Weilbull mortality force function is used to establish the mortality rate of members during accumulation phase. Furthermore, an optimization problem from the Hamilton Jacobi Bellman (HJB) equation is obtained using dynamic programming approach. Also, the Legendre transformation method is used to transform the HJB equation which is a nonlinear partial differential equation to a linear partial differential equation and solves the resultant equation for the value function and the optimal distribution plan under logarithm utility function. Finally, numerical simulations of the impact of some important parameters on the optimal distribution plan were obtained and it was observed that the optimal distribution plan is inversely proportional to the initial fund size, predetermined interest rate, additional voluntary contributions, charge on balance and instantaneous volatility. <\/p>","references":"[1]\tR. 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