CPPI strategy on defined contribution pension scheme under cushion option and discrete time trading setting

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Tezin Türü: Yüksek Lisans

Tezin Yürütüldüğü Kurum: Orta Doğu Teknik Üniversitesi, Uygulamalı Matematik Enstitüsü, Aktüerya Bilimleri Anabilim Dalı, Türkiye

Tezin Onay Tarihi: 2016

Öğrenci: ANIL GÜLVEREN

Danışman: SEVTAP AYŞE KESTEL

Özet:

A Defined Contribution (DC) pension plan requires periodic contributions for a certain time in order to aggregate funds for the old ages. It enables the participant to pay a monthly/yearly premium whose valuation is done in financial markets. The choice of the market products (assets, bonds etc.) is processed by a centralized system at which a pension company/government has authority to manage the fund. Therefore, a risk management on the fund has to be taken into account. Such long term investment schemes are sensitive and prone to market risks. Additionally, a long-term planned funding might be distorted when premature terminations occur. For such cases, it is benefical for both parties (insurer and insured) to secure the fund in such a way that its return remains within the expected margins. We consider Constant Proportion Portfolio Insurance (CPPI) strategy in a DC pension plan. We examine a model that the price dynamics of a risky asset and labor income process are defined by a continuous-time stochastic process and trading is restricted to discrete time scheme. An exotic option is proposed as cushion option to reduce the risk that the portfolio value comes under the floor which is known as gap risk in the literature. We analyze the effectiveness of derived cushion option on CPPI strategy in a DC pension plan by measuring its sensivity with respect to the parameters through Monte Carlo Simulation.