EQUILIBRIUM INVESTMENT STRATEGY FOR MULTI-PERIOD DC PENSION FUNDS WITH STOCHASTIC INTEREST RATE AND REGIME SWITCHING

This paper studies the equilibrium investment strategy for multi-period defined contribution (DC) pension funds under the mean-variance cri-terion. We assume that the financial market consists of one risk-free asset and multiple risky assets, the interest rate is stochastic and characterized by the discrete-time Ho-Lee model, and the interest rate as well as the returns of the risky assets both depend on the market states, the evolution of the market states is described by a Markov chain. We regard this problem as a non-cooperative game whose equilibrium strategy is a time-consistent strategy, and derive the analytical expressions for the equilibrium strategy, the equilibrium value function and the equilibrium efficient frontier by using the extended Bell-man equation and the matrix representation technique. Finally, a numerical example based on real data from the UK market is provided to shed light on the theoretical results established in this paper.