Dynamic Life Cycle Investing

Dynamic Life Cycle Investing

den Haan, Tim (TU Delft Electrical Engineering, Mathematics and Computer Science)

Oosterlee, Kees (mentor)
van der Schans, Martin (mentor)
van der Woude, Jacob (graduation committee)
Chau, Ki Wai (graduation committee)

Delft University of Technology

Applied Mathematics

2019-06-12

This thesis studies the asset allocation of a DC pension investor over a long time horizon. Investors allocate their portfolio wealth between two assets: a return portfolio and a matching portfolio. Investors can adjust their allocation once a year. Several dynamic investment strategies that improve investment results compared to fixed allocations or static life cycles are shown. The dynamic investment strategies have been constructed by using two different approaches. The first approach is rule-based and defines intermediate wealth targets for every year in the investment horizon. Investment decisions are taken based on performance compared to these targets. The second approach involves a dynamic programming algorithm. The asset allocation over time is not always stable when using dynamic programming. Methods to smooth the asset allocation over time and improve stability are discussed. Last, both approaches are combined in one strategy.

Pension investor
Portfolio optimization
Rule-based control
Dynamic Programming
smoothing

http://resolver.tudelft.nl/uuid:495de739-9df7-4333-9da7-8c5b10bd9589

Student theses

master thesis

© 2019 Tim den Haan