Dynamic Preferences for Popular Investment Strategies in Pension Funds

Abstract In this paper, we infer preferences that are consistent with some given dynamic investment strategies. Two popular dynamic strategies in the pension funds industry are considered: a constant proportion portfolio insurance (CPPI) strategy and a life-cycle strategy. In both cases, we are able to infer preferences of the pension fund's manager from her investment strategy, and to exhibit the specific expected utility maximization that makes this strategy optimal at any given time horizon. For example, we show that, in a Black-Scholes market, a CPPI strategy is optimal for a fund manager with HARA utility function, while an investor with a SAHARA utility function (introduced b