Abstract

We consider a simple savings problem where contributions are made to a fund and invested to meet a future liability. The conventional approach is to estimate future investment return and calculate a fixed contribution to be paid regularly by the saver. We propose a flexible plan where contributions are systematically adjusted and targeted. We show by means of stochastic simulations that this plan has a reduced risk of a shortfall and is relatively insensitive to errors in the planner's estimate of future returns. Sensitivity analyses in terms of parameter values, stochastic return models and investment horizons are also performed.

Publication Type:	Article
Additional Information:	This is the peer reviewed version of the following article: Owadally, I., Haberman, S. and Gómez Hernández, D. (2013), A Savings Plan With Targeted Contributions. Journal of Risk and Insurance, 80: 975–1000., which has been published in final form at http://dx.doi.org/10.1111/j.1539-6975.2012.01485.x. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Subjects:	H Social Sciences > HG Finance
Departments:	Cass Business School > Finance Cass Business School > Actuarial Science & Insurance
URI:	https://openaccess.city.ac.uk/id/eprint/14280

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