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Optimal investment and Pension policy in Pay-As-You-Go systems under forward utility and ageing population

par Alonso Garcia, Jennifer ;Hillairet, Caroline;Kaakai, Sarah;Mrad, Mohamed
Organisme financeur Europlace Institute of Finance, ANR project DREAMeS
Publication Non publié, 2026-05-12

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Résumé :

This paper investigates optimal investment and pension policies in a Pay-As-You-Go (PAYG) system supplemented by a buffer fund used as an intergenerational risk‑sharing mechanism. The social planner’s preference criterion is represented by non-zero volatility forward Constant Relative Risk Aversion (CRRA) utilities, and explicitly accounts for both sustainability and adequacy constraints. The optimal policies are characterized in closed form, and an in-depth analysis of the impact of preference sensitivities on the pension scheme is conducted. A detailed numerical analysis is performed to evaluate the sustainability and benefit adequacy of this hybrid PAYG–buffer‑fund arrangement under a range of demographic, financial, and macroeconomic scenarios.