The Valuation and Risk Management of a DB Underpin Pension Plan

dc.contributor.authorChen, Kai
dc.date.accessioned2007-08-02T13:39:54Z
dc.date.available2007-08-02T13:39:54Z
dc.date.issued2007-08-02T13:39:54Z
dc.date.submitted2007
dc.description.abstractHybrid pension plans offer employees the best features of both defined benefit and defined contribution plans. In this work, we consider the hybrid design offering a defined contribution benefit with a defined benefit guaranteed minimum underpin. This study applies the contingent claims approach to value the defined contribution benefit with a defined benefit guaranteed minimum underpin. The study shows that entry age, utility function parameters and the market price of risk each has a significant effect on the value of retirement benefits. We also consider risk management for this defined benefit underpin pension plan. Assuming fixed interest rates, and assuming that salaries can be treated as a tradable asset, contribution rates are developed for the Entry Age Normal (EAN), Projected Unit Credit(PUC), and Traditional Unit Credit (TUC) funding methods. For the EAN, the contribution rates are constant throughout the service period. However, the hedge parameters for this method are not tradable. For the accruals method, the individual contribution rates are not constant. For both the PUC and TUC, a delta hedge strategy is derived and explained. The analysis is extended to relax the tradable assumption for salaries, using the inflation as a partial hedge. Finally, methods for incorporating volatility reducingand risk management are considered.en
dc.format.extent1174333 bytes
dc.format.mimetypeapplication/pdf
dc.identifier.urihttp://hdl.handle.net/10012/3144
dc.language.isoenen
dc.pendingfalseen
dc.publisherUniversity of Waterlooen
dc.subjectRisk Managementen
dc.subjectPensionen
dc.subjectDB underpinen
dc.subject.programActuarial Scienceen
dc.titleThe Valuation and Risk Management of a DB Underpin Pension Planen
dc.typeDoctoral Thesisen
uws-etd.degreeDoctor of Philosophyen
uws-etd.degree.departmentStatistics and Actuarial Scienceen
uws.peerReviewStatusUnrevieweden
uws.scholarLevelGraduateen
uws.typeOfResourceTexten

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