1. Defined-contribution (DC) pension plans are becoming more popular than defined-benefit (DB) pension plans in many countries due to their ability to transfer investment and longevity risks from the sponsor to the members.
2. This paper studies the optimal asset allocation decisions for DC pension plans, taking into account inflation risk and loss aversion.
3. The paper uses an S-shaped utility function to describe a DC pension plan member’s preference, and adopts the martingale approach to derive the optimal investment strategy in closed-form.
The article is generally reliable and trustworthy, as it provides a comprehensive overview of the current literature on optimal investment strategies for DC pension plans with different objectives and financial market settings. It also presents a detailed analysis of how inflation risk and loss aversion can be incorporated into such strategies, using an S-shaped utility function and the martingale approach.
However, there are some potential biases that should be noted. Firstly, the article does not explore any counterarguments or alternative perspectives on its proposed strategies; instead, it focuses solely on presenting its own arguments without considering other points of view. Secondly, while it does provide evidence for its claims in terms of citing relevant literature, it does not provide any empirical evidence or data to support its conclusions. Finally, while it does mention possible risks associated with DC pension plans, it does not go into detail about how these risks can be mitigated or managed effectively.
In conclusion, this article is generally reliable and trustworthy but could benefit from exploring alternative perspectives and providing more empirical evidence for its claims.