The Optimal Strategy to Research Pension Funds in China Based on the Loss Function

Abstract

Based on the theory of actuarial present value, a pension fund investment goal can be formulated as an objective function. The mean-variance model is extended by defining the objective loss function. Furthermore, using the theory of stochastic optimal control, an optimal investment model is established under the minimum expectation of loss function. In the light of the Hamilton-Jacobi-Bellman (HJB) equation, the analytic solution of the optimal investment strategy problem is derived.

Keywords

• Actuarial present value
• Pension funds
• Fund growth strategy
• Investment strategy
• Stochastic optimal control
• Loss function
• Hamilton-Jacobi-Bellman equation