Mean-Variance Portfolio Selection with Inflation Hedging Strategy: a Case of a Defined Contributory Pension Scheme

Abstract

In this paper, we consider a mean-variance portfolio selection problem with inflation hedging strategy for a
defined contributory pension scheme. We establish the optimal wealth which involves a cash account and two risky
assets for the pension plan member (PPM). The ecient frontier is obtained for the three asset classes which gives
the PPM the opportunity to decide his or her own risk and wealth. It was found that inflation-linked bond is a suitable
asset for hedging inflation risks in an investment portfolio.