volume 10, issue 3, P627-663 2004
DOI: 10.1017/s1357321700002713
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H.-C. Huang, A. J. G. Cairns

Abstract: ABSTRACTThis paper considers the market or economic valuation and the hedging of Limited Price Indexed (LPI) liabilities. This involves finding optimal static and dynamic hedging strategies which minimise the riskiness of the investment portfolio relative to the liability.In this paper we do not aim to find the perfect hedge in a perfect world. Instead, it is assumed that optimisation is restricted to three commonly used asset classes in pension funds: cash; long-term (or irredeemable) fixed-interest bonds; an…

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