Contribution and solvency risk in a defined benefit pension scheme

Haberman, Steven; Butt, Zoltan; Megaloudi, Chryssoula

doi:10.1016/s0167-6687(00)00051-2

Cited by 32 publications

(44 citation statements)

References 7 publications

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“…There are a lot of papers dealing with defined benefit pension plans, see for example Haberman, Sung (1994), Haberman et al (2000), Cairns (2000), Chang et al (2003), Haberman, Sung (2005). However, we are aware of only two in which a pension liability is a random variable.…”

Section: Introductionmentioning

confidence: 99%

Mean–variance optimization problems for an accumulation phase in a defined benefit plan

Delong

Gerrard²,

Haberman³

2008

Insurance: Mathematics and Economics

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In this paper we deal with contribution rate and asset allocation strategies in a pre-retirement accumulation phase. We consider a single cohort of workers and investigate a retirement plan of a defined benefit type in which an accumulated fund is converted into a life annuity. Due to the random evolution of a mortality intensity, the future price of an annuity, and as a result, the liability of the fund, is uncertain. A manager has control over a contribution rate and an investment strategy and is concerned with covering the random claim. We consider two mean-variance optimization problems, which are quadratic control problems with an additional constrain on the expected value of the terminal surplus of the fund. This functional objectives can be related to the well-established financial theory of claim hedging. The financial market consists of a risk-free asset with a constant force of interest and a risky asset which price is driven by a Lévy noise, whereas the evolution of a mortality intensity is described by a stochastic differential equation driven by a Brownian motion. Techniques from the stochastic control theory are applied in order to find optimal strategies.

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Section: Introductionmentioning

confidence: 99%

Mean–variance optimization problems for an accumulation phase in a defined benefit plan

Delong

Gerrard²,

Haberman³

2008

Insurance: Mathematics and Economics

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“…This type of funding method is quite popular in actuarial practice, because of its simplicity and good stability properties. Bowers et al (1979), Cairns and Parker (1997) and Haberman et al (2000) constitute examples of the use of this method in the literature.…”

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confidence: 99%

Optimal investment decisions with a liability: The case of defined benefit pension plans

Josa-Fombellida

Rincón‐Zapatero

2006

Insurance: Mathematics and Economics

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In this paper the optimal management of an aggregated dynamic pension fund is studied. To cover the promised liabilities to workers at the age of retirement, the plan sponsor continuously manages time-varying funds. He or she can choose the rate of contribution to the fund, the investment in a given number of risky assets, and a security with constant rate of return. The problem of maximizing the probability that the fund assets achieve some prescribed goal before some undesirable lower value, or ruin point, is first considered. Secondly, the problem of minimizing (resp. maximizing) the expected discounted cost of reaching a ruin point (resp. beating a desired objective) is solved. Finally, maximization of utility function when the fund can suddenly terminate is analyzed. The main finding is that optimal investment policies are of constant proportionality type.

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“…Of course, the main concern of the sponsor is the solvency risk, related to the security of the pension fund in attaining the comprised liabilities. Similar objectives have been considered in other works, such as Haberman and Sung (1994), Haberman et al (2000) and Rincón-Zapatero (2001, 2004). The optimal management of DB plans in the presence of a random interest rate is found, but in discrete time, in Haberman and Sung (1994), Chang (1999) and Chang et al (2003).…”

Section: Introductionmentioning

confidence: 80%

Optimal asset allocation for aggregated defined benefit pension funds with stochastic interest rates

Josa-Fombellida

Rincón‐Zapatero

2010

European Journal of Operational Research

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In this paper we study the optimal management of an aggregated pension fund of defined benefit type, in the presence of a stochastic interest rate. We suppose that the sponsor can invest in a savings account, in a risky stock and in a bond with the aim of minimizing deviations of the unfunded actuarial liability from zero along a finite time horizon. We solve the problem by means of optimal stochastic control techniques and analyze the influence on the optimal solution of some of the parameters involved in the model. JEL Classification: C61, G11, G23.

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Contribution and solvency risk in a defined benefit pension scheme

Cited by 32 publications

References 7 publications

Mean–variance optimization problems for an accumulation phase in a defined benefit plan

Mean–variance optimization problems for an accumulation phase in a defined benefit plan

Optimal investment decisions with a liability: The case of defined benefit pension plans

Optimal asset allocation for aggregated defined benefit pension funds with stochastic interest rates

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