Before revision: This paper studies an optimal portfolio problem for a DC pension plan considering both interest rate risk and longevity risk . In the accumulation phase, plan members pay constant contributions continuously into the pension fund. We assume that the evolution of mortality rate of all the plan members can be described by the same stochastic process and a representative member is chosen to study the problem . At retirement time, the pension fund is used to purchase a lifetime annuity and a minimum guarantee is required by the representative member. To hedge the longevity risk , we introduce a mortality-linked security, i.e. a longevity bond , into the financial market .
After revision: Pension schemes all over the world are under increasing pressure to efficiently hedge the longevity risk posed by ageing populations. In this work, we study an optimal investment problem for a defined contribution pension scheme which decides to hedge the longevity risk , we introduce a mortality-linked security, i.e. a longevity bond , into the financial market .