Guaranteeing Benefits in Generational Pension Plans

37 Pages Posted: 14 Nov 2010 Last revised: 22 Aug 2011

See all articles by Xiaohong Huang

Xiaohong Huang

University of Twente - Department of Finance & Accounting

Ronald Mahieu

Tilburg University - Center for Economic Research, Econometrics and Finance Group; TiasNimbas Business School

Date Written: august 17, 2011

Abstract

In this paper we analyze the possibilities of intergenerational risk sharing in a generational DB pension fund. In a generational pension plan each generation has their own pension scheme and is subject to discretionary investment, indexation and contribution policies, thereby losing intergenerational diversifi cation gains. Intergenerational risk sharing is repaired by introducing contingent claims on the generational surplus or deficit. Using risk-neutral valuation we find that in some circumstances the values of these options can be substantial.

Keywords: customization, collective pension plan, intergenerational risk sharing, contingent claims

Suggested Citation

Huang, Xiaohong and Mahieu, Ronald J., Guaranteeing Benefits in Generational Pension Plans (august 17, 2011). Netspar Discussion Paper No. 01/2010-037. Available at SSRN: https://ssrn.com/abstract=1707999 or http://dx.doi.org/10.2139/ssrn.1707999

Xiaohong Huang

University of Twente - Department of Finance & Accounting ( email )

P.O.Box 217
7500 AE Enschede
Netherlands

Ronald J. Mahieu (Contact Author)

Tilburg University - Center for Economic Research, Econometrics and Finance Group ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2430 (Phone)
+31 13 466 3280 (Fax)

HOME PAGE: http://center.uvt.nl/staff/mahieu/

TiasNimbas Business School ( email )

Warandelaan 2
Tilburg, North-Brabant 5071HS
Netherlands

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