Pricing Buy‐Ins and Buy‐Outs

Lin, Yijia; Shi, Tianxiang; Arık, Atilla

doi:10.1111/jori.12159

Cited by 27 publications

(17 citation statements)

References 39 publications

(59 reference statements)

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“…This assumption is made because the pricing formula in (3.3) does not address what happens to the remaining assets after all pensioners are deceased. Lin et al (2017), for instance, addressed this in relation to investment risk premium calculation.…”

Section: Modelmentioning

confidence: 99%

“…We believe that this investment strategy is not unrealistic for annuity insurers who tend to have a rather low exposure to equity risk and prefer fixed income securities (FitchRatings, 2011). In their study, Lin et al (2017) have also suggested values for the correlation between the three asset classes and parameter values for the price dynamics. Adopting those parameter values, we find that the price process of the portfolio can be modelled as in (2.13) and (3.2) with the parameter values given in Table 4.…”

Section: Modelmentioning

confidence: 99%

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The impact of simultaneous shocks to financial markets and mortality on pension buy-out prices

2023

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In this paper, we determine the fair value of a pension buyout contract under the assumption that changes in mortality can have an impact on financial markets. Our proposed model allows for shocks to occur simultaneously in mortality rates and financial markets, so that strong changes in mortality rates can affect interest rates and asset prices. This approach challenges the common but very strong assumption that mortality and market risk drivers are independent. A simulation-based pricing framework is applied to determine the buyout premium for a hypothetical fully funded pension scheme. The results of an extensive sensitivity analysis show how buyout prices are affected by changes in mortality and financial markets. Surprisingly, we find that the impact of shocks is similar whether or not these shocks occur simultaneously or not, although there are some differences in annuity prices and buyout premiums. We clearly see that the intensity and severity of shocks, and asset price volatility play a dominant role for buyout prices.

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Section: Modelmentioning

confidence: 99%

Section: Modelmentioning

confidence: 99%

The impact of simultaneous shocks to financial markets and mortality on pension buy-out prices

2023

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“…Female directors may also balance the costs and benefits of such decisions. Given that Lin, Shi and Arik (2017) suggest that implementing pension BIOs may constrain firms facing poor financial conditions, female directors may worry about the significant costs of such actions. However, since female directors appear to be less traditional (Adams and Funk, 2012) and more risk‐averse (Croson and Gneezy, 2009) than male directors, they may be more likely to use new financial tools to help reduce firms’ pension obligations.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

Impact of Board Composition on Pension De‐risking Strategies

Al‐Najjar

2021

British J of Management

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Pension de‐risking strategies have been widely adopted by firms with defined‐benefit (DB) pension plans to reduce pension risk. This paper investigates the influence of board composition on pension de‐risking strategies within the UK, focusing particularly on three strategies: changes to pension asset allocations, switches from DB to defined‐contribution (DC) pension plans and pension buy‐ins and buy‐outs. Our findings suggest that firms with larger boards and more independent directors are less likely to invest their pension assets in equities. Survival analysis shows that firms with larger boards are slower to switch from DB to DC pension plans. This is consistent with stakeholder theory, in that firms with large boards or more independent directors are more likely to protect employees’ benefits when de‐risking their DB pension plans. However, firms with more female directors are faster to switch fully from DB to DC pension plans and slower to engage in pension buy‐in and buy‐out transactions. This suggests that female directors encourage fully switching DB pension plans, while they are concerned with the significant costs of pension buy‐in or buy‐out. This research provides clear evidence that pension de‐risking strategies are influenced by board composition. UK pension trustees play a key role in determining switches from DB to DC pension plans, mitigating the impact of independent directors.

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“…• Design and pricing of longevity bonds and other longevity-linked products (e.g. Blake et al, 2006aBlake et al, , 2006bBlake et al, , 2014Bauer, 2006;Bauer & Ruß, 2006;Antolin & Bloomestein, 2007;Bauer & Kramer, 2007Barbarin, 2008;Bauer et al, 2010b;Chen & Cummins, 2010;Kogure & Kurachi, 2010;Bravo, 2011;Dowd et al, 2011a;Mayhew & Smith, 2011;Zhou et al, 2011Zhou et al, , 2013Chen et al, 2013;Shen & Siu, 2013;Denuit et al, 2015;Hunt & Blake, 2015;Milevsky & Salisbury, 2015;Yang et al, 2015;Wang & Li, 2016;Chen et al, 2017;Lin et al, 2017b ;Leung et al, 2018;MacMinn & Richter, 2018;. • Design and pricing of longevity-linked derivatives (e.g.…”

Section: • Landg Executed Buy-ins With the Pearson Pension Plan (£500m mentioning

confidence: 99%