Hostname: page-component-cd9895bd7-p9bg8 Total loading time: 0 Render date: 2024-12-23T15:21:57.139Z Has data issue: false hasContentIssue false
  • English
  • Français

Pension Fund Management and Conditional Indexation

Published online by Cambridge University Press:  09 August 2013

Torsten Kleinow
Torsten Kleinow*
Affiliation:
Department of Actuarial Mathematics and Statistics and, the Maxwell Institute for Mathematical Sciences, School of Mathematical and Computer Sciences, Heriot-Watt University, Edinburgh, EH14 4AS, United Kingdom, E-mail: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

Conditional indexation offers a middle way between defined benefit and defined contribution pension schemes. In this paper, we consider a fully-funded pension scheme with conditional indexation. We show how the pension fund can be managed to reduce the risks associated with promised pension benefits when declared benefits are adjusted regularly during the working life. In particular, we derive an investment strategy that provides protection against underfunding at retirement and which is self-financing on average. Our results are illustrated in an extensive simulation study.

Keywords

Conditional IndexationFully Funded PensionPension Fund ManagementQuadratic Hedging
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 41 , Issue 1 , May 2011 , pp. 61 - 86
Copyright
Copyright © International Actuarial Association 2011

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Ballotta, L. (2005) A Lévy process-based framework for the fair valuation of participating life insurance contracts. Insurance: Mathematics and Economics 37(2), 173–196.Google Scholar
Barr, N. and Diamond, P. (2006) The Economics of Pensions. Oxf Rev Econ Policy 22(1), 15–39.Google Scholar
Bauer, D., Kiesel, R., Kling, A. and Russ, J. (2006) Risk-neutral valuation of participating life insurance contracts. Insurance: Mathematics and Economics 39(2), 171–183.Google Scholar
Bikker, J.A. and Vlaar, P.J.G. (2007) Conditional indexation in defined benefit pension plans in the netherlands. The Geneva Papers 32, 494–515(22).Google Scholar
Boulier, J.-F., Huang, S. and Taillard, G. (2001) Optimal management under stochastic interest rates: the case of a protected defined contribution pension fund. Insurance: Mathematics and Economics 28(2), 173–189.Google Scholar
Cairns, A.J.G. (2004) Interest rate models: an introduction. Princeton University Press.Google Scholar
Cairns, A.J.G., Blake, D. and Dowd, K. (2006) Stochastic lifestyling: Optimal dynamic asset allocation for defined contribution pension plans. Journal of Economic Dynamics and Control 30(5), 843–877.Google Scholar
Dai, R. and Schumacher, J.M. (2009a) Valuation of Contingent Pension Liabilities and Implementation of Conditional Indexation, presented at the 13th International Congress on Insurance: Mathematics and Economics.Google Scholar
Dai, R. and Schumacher, J.M. (2009b) Welfare analysis of conditional indexation schemes from a two-reference-point perspective. Journal of Pension Economics and Finance 8(3), 321–350.Google Scholar
de Jong, F. (2008) Pension fund investments and the valuation of liabilities under conditional indexation. Insurance: Mathematics and Economics 42(1), 1–13.Google Scholar
Föllmer, H. and Schied, A. (2004) Stochastic Finance: An Introduction in Discrete Time. de Gruyter.Google Scholar
Kleinow, T. (2009) Valuation and hedging of participating life-insurance policies under management discretion. Insurance: Mathematics & Economics 44(1).Google Scholar
Kleinow, T. and Willder, M. (2007) On the effect of management discretion on hedging and fair valuation of participating policies with interest rate guarantees. Insurance: Mathematics & Economics 40(3), 445–458.Google Scholar
MacDonald, B.-J. and Cairns, A.J.G. (2007) The impact of dc pension systems on population dynamics. North American Actuarial Journal 11(1), 17–48.Google Scholar
MacDonald, B.-J. and Cairns, A.J.G. (2009) Getting feedback on defined contribution pension plans. Journal of Risk and Insurance 76(2), 385–417.Google Scholar
Ponds, E.H.M. and van Riel, B. (2009) Sharing risk: the netherlands' new approach to pensions. Journal of Pension Economics and Finance 8(1), 91–105.Google Scholar