Not Available for Download

Dynamic Asset-Liability Management for Defined-Benefit Pension Plans

Posted: 10 Jan 2008  

Jerome Detemple

Boston University - Department of Finance & Economics; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Marcel Rindisbacher

Questrom School of Business, Boston University; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Jing Zhou

affiliation not provided to SSRN

Date Written: 2007

Abstract

A dynamic asset-liability management model for defined-benefit pension plans is developed. The plan can be in surplus or deficit. The sponsor is loss averse and tolerates limited shortfalls in assets under management relative to the liability due. The optimal contribution policy, the optimal dividend policy and the associated asset allocation rule are derived and analyzed. Sound Asset-Liability Management is shown to entail future withdrawals from as well as future contributions to the pension fund, even if the current funding shortfall is large. The impact of model parameters, such as contribution capacity, shortfall ratios tolerated, risk aversion and loss aversion, is examined. Wealth effects are found to be critical for the properties of asset allocation rules.

JEL Classification: G23, G35, G11

Suggested Citation

Detemple, Jerome and Rindisbacher, Marcel and Zhou, Jing, Dynamic Asset-Liability Management for Defined-Benefit Pension Plans (2007). Paris December 2007 Finance International Meeting AFFI-EUROFIDAI Paper. Available at SSRN: https://ssrn.com/abstract=1082234

Jerome Detemple (Contact Author)

Boston University - Department of Finance & Economics ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
(617) 353-4297 (Phone)
(617) 353 6667 (Fax)

Center for Interuniversity Research and Analysis on Organization (CIRANO)

2020 rue University, 25th Floor
Montreal, Quebec H3C 3J7
Canada

Marcel Rindisbacher

Questrom School of Business, Boston University ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States
617 353 4152 (Phone)
617 353 999 (Fax)

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th Floor
Montreal, Quebec H3C 3J7
Canada

Jing Zhou

affiliation not provided to SSRN ( email )

Paper statistics

Abstract Views
1,460