Stochastic Funding of a Defined Contribution Pension Plan with Proportional Administrative Costs and Taxation under Mean-Variance Optimization Approach

  • Charles I Nkeki Department of Mathematics, University of Benin, Nigeria.


This paper aim at studying a mean-variance portfolio selection problem with stochastic salary, proportional administrative costs and taxation in the accumulation phase of a defined contribution (DC) pension scheme. The fund process is subjected to taxation while the contribution of the pension plan member (PPM) is tax exempt. It is assumed that the flow of contributions of a PPM are invested into a market that is characterized by a cash account and a stock. The optimal portfolio processes and expected wealth for the PPM are established. The efficient and parabolic frontiers of a PPM portfolios in mean-variance are obtained. It was found that capital market line can be attained when initial fund and the contribution rate are zero. It was also found that the optimal portfolio process involved an inter-temporal hedging term that will offset any shocks to the stochastic salary of the PPM.

Author Biography

Charles I Nkeki, Department of Mathematics, University of Benin, Nigeria.
Charles I. Nkeki was born in Kaduna, Nigeria in 1977. The author is a graduate of Delta State University, Abraka, Delta State, Nigeria where he obtained B. Sc. (Ed.) Mathematics in 2002. The author proceeded to University of Ibadan, Oyo State, Nigeria where he obtained M.Sc. (Mathematics) in 2006 and Ph.D (Mathematics) in 2012. The author major field of study include: dynamic optimization, financial mathematics and Pension fund management.He is currently with the Department of Mathematics, Faculty of Physical Sciences, University of Benin, Benin City, Edo State, Nigeria as a lecturer I. He joined the university as assistant lecturer in 2007.Dr. Nkeki is a member of International association of engineer since 2011, Mathematical Association of Nigeria, Nigerian Mathematical Sociaty and Nigerian Association of Mathematical Physics.


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How to Cite
Nkeki, C. I. (2014). Stochastic Funding of a Defined Contribution Pension Plan with Proportional Administrative Costs and Taxation under Mean-Variance Optimization Approach. Statistics, Optimization & Information Computing, 2(4), 323-338.
Research Articles