Title: Mean-variance investment strategy with proportional transaction costs and withdrawal process for a defined contribution pension scheme

Authors: Charles I. Nkeki

Addresses: Department of Mathematics, Faculty of Physical Sciences, University of Benin, P.M.B. 1154, Benin City, Edo State, Nigeria

Abstract: In this paper, we consider an extension of the Markowitz portfolio and investment problem in which transaction costs are incurred; contributions and withdrawals are made by the pension plan members (PPMs) in the investment portfolio. The transaction costs are modelled as a proportion of the value of risky assets transacted. The aims of this paper are to: a) minimise the investment risks; b) minimise the contribution risks and simultaneously maximise amount of contributions; c) strategically minimise the amount of withdrawal by the PPMs. The optimal portfolio, contributions and withdrawal processes, with proportional transaction costs were obtained. Some numerical results are also presented in this paper.

Keywords: mean-variance; investment strategy; withdrawal; transaction costs; pension plan member; PPM; defined contribution; pension scheme.

DOI: 10.1504/IJOR.2019.097577

International Journal of Operational Research, 2019 Vol.34 No.2, pp.213 - 239

Received: 17 Jun 2015
Accepted: 27 Feb 2016
Published online: 30 Jan 2019 *

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