Yingfei Sun
Title: Optimal hurdle rate and investment policies in lifetime pension pools
Date: Tuesday, April 22nd, 2025
Time: 2:15pm
Location: LIB 2020
Supervised by: Barbara Sanders & Jean-Fran莽ois B茅gin
Abstract:
Lifetime pension pools provide retirees with lifelong income by pooling mortality risk and adjusting benefits based on investment performance and mortality within the pool. Their benefit structure depends on two design elements: the investment policy and the hurdle rate. Existing research on asset allocation in these pools is limited, with most studies relying on simplistic investment strategies. Moreover, the optimal hurdle rate has been largely overlooked. This study addresses both gaps by simultaneously exploring the optimal hurdle rate and investment strategies, employing dynamic programming to account for varying levels of risk aversion. Our results show that the investment policy adjusts dynamically in response to the pool鈥檚 assets and the number of survivors. Higher risk aversion leads to more conservative allocations and lower hurdle rates, whereas lower risk aversion results in riskier allocations and higher hurdle rates. Robustness tests confirm these findings across varying pool sizes, financial conditions, mortality assumptions, and subjective discount factors.