ABSTRACT
Contents 5.1 Summary of Cairns, Blake, and Dowd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
In this short chapter we summarize some of the results of Cairns, Blake, and Dowd (2006). The chapter considers asset-allocation strategies that might be adopted by members of defined-contribution pension plans. The underlying model incorporates asset, salary, and interest-rate risk. We assume that the member measures utility in terms of the replacement ratio at the time of retirement: the ratio of pension to final salary. The plan member’s objective is to maximize their expected terminal utility.
