The Optimal Investment Strategies In A Defined Contributory Pension Scheme And The Volatility Analysis Of The Nigerian Stock Market
ABSTRACT
Developing an optimal investment strategy for pension administrators is one of the major problems in recent times in Nigeria. In this work an investment model of a pension plan participant (PPP) under the defined contribution (DC) scheme was developed. The PPP was assumed to have a deterministic portion of his salary contributed on a monthly basis into the pension fund; part of this wealth is invested in a risk free asset and the remaining part in a risky asset. The risky asset is considered to be a Heston volatility model and the risk appetite of the PPP is assumed to be a constant relative risk aversion (CRRA) utility function. The Hamilton Jacobi Bellman (HJB) equation for the obtained model is derived and an approximate closed form solution is obtained for the resulting partial differential equation using the Prandtl asymptotic matching. Furthermore, the stochastic differential equation of the wealth process is transformed into a stochastic difference equation. The difference equation so transformed is matched to a standard Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model to capture the impact of news in the market, while the wavelet analysis is used to capture the impact of noise on the volatility of the stock market. Historical data from the Nigerian Stock Market is used for empirical analysis in a concrete setting. Our results indicate that the Nigerian stock market is driven by noise at the low period and driven by information at the high period.
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OKONKWO, U (2022). The Optimal Investment Strategies In A Defined Contributory Pension Scheme And The Volatility Analysis Of The Nigerian Stock Market. Repository.mouau.edu.ng: Retrieved Apr 24, 2024, from https://repository.mouau.edu.ng/work/view/the-optimal-investment-strategies-in-a-defined-contributory-pension-scheme-and-the-volatility-analysis-of-the-nigerian-stock-market-7-2
UKWUOMA, OKONKWO. "The Optimal Investment Strategies In A Defined Contributory Pension Scheme And The Volatility Analysis Of The Nigerian Stock Market" Repository.mouau.edu.ng. Repository.mouau.edu.ng, 14 Mar. 2022, https://repository.mouau.edu.ng/work/view/the-optimal-investment-strategies-in-a-defined-contributory-pension-scheme-and-the-volatility-analysis-of-the-nigerian-stock-market-7-2. Accessed 24 Apr. 2024.
UKWUOMA, OKONKWO. "The Optimal Investment Strategies In A Defined Contributory Pension Scheme And The Volatility Analysis Of The Nigerian Stock Market". Repository.mouau.edu.ng, Repository.mouau.edu.ng, 14 Mar. 2022. Web. 24 Apr. 2024. < https://repository.mouau.edu.ng/work/view/the-optimal-investment-strategies-in-a-defined-contributory-pension-scheme-and-the-volatility-analysis-of-the-nigerian-stock-market-7-2 >.
UKWUOMA, OKONKWO. "The Optimal Investment Strategies In A Defined Contributory Pension Scheme And The Volatility Analysis Of The Nigerian Stock Market" Repository.mouau.edu.ng (2022). Accessed 24 Apr. 2024. https://repository.mouau.edu.ng/work/view/the-optimal-investment-strategies-in-a-defined-contributory-pension-scheme-and-the-volatility-analysis-of-the-nigerian-stock-market-7-2