Faculty of Actuarial Science and Insurance Research Seminars - Elena Vigna

Abstract:
In defined contribution pension schemes the member bears the investment risk and her main concern is to obtain an inadequate fund at retirement. To address inadequacy risk,  flexibility is often given to the member to pay additional voluntary contributions (AVCs)  into the fund. In many countries the AVC schemes allow members of the workplace pension  plan to increase the amount of retirement benefits by paying extra contributions.

In this talk, we will show how to choose optimally the additional voluntary contributions in DC pension schemes. This talk is based on two papers.
In the first paper,  in a simple Black and Scholes financial market, we define a target-based  optimization problem where the member of an AVC scheme can choose at any time the investment strategy and the additional voluntary contributions to the fund. In setting the problem,  the member faces a trade-off between the importance given to the stability of payments during the accumulation phase and the achievement of the desired annuity at retirement. We  derive closed-form solutions via dynamic programming and prove that (i) the optimal fund never reaches the target final fund, (ii) the optimal amount invested in the risky asset is positive, and (iii) the optimal AVC is higher than the target one. We run numerical simulations to allow for different member’s preferences, and perform sensitivity analyses to assess the  controls’ robustness. The second paper  extends the first one by considering an optimization problem for optimal investment and additional contribution in a more sophisticated financial-labour market with stochastic interest rate and stochastic salary. The optimal policies are provided in closedform and numerical simulations show the behaviour of the optimal policies over time and the impact of the stochastic salary on the optimal policies.

Biography:
Elena Vigna is full professor in Mathematical Methods for Economics and Actuarial and Financial Sciences at Università di Torino, Italy, and Affiliate of Collegio Carlo Alberto. From 2016 to 2022 she was Director of the Master Degree in Quantitative Finance and Insurance of Università di Torino. She holds a PhD in Matematica per le Decisioni Economiche from University of Trieste, and a Postgraduate Certificate in Actuarial Management from the City University, London. Her main research interests lie in the Insurance field, ranging from optimal decision making in defined contribution pension schemes to stochastic mortality modelling. Some recent research focuses on modelling and treatment of time (in)consistent dynamic optimization problems. She has several publications on the leading journals in Actuarial Science, and has published also on some high-impact journals in Mathematical Finance.