Valuation of Liabilities in Hybrid Pension Plans
30 Pages Posted: 30 Sep 2011
Date Written: September 15, 2011
Contemporary pension plans are often a mixture of defined benefit and defined contribution plans. This paper explores the valuation of a generalized form of liabilities in hybrid pension plans taking account of both equity and interest rate risk. We derive an analytic valuation formula for the outstanding liability and examine how the liability evolves over time in a runoff scenario. Comparative statistics are carried out to show the relevance of some key parameters in defining the hybrid pension plans, particulary the indicator of hybridity and the equity allocation in the pension fund's investment policy.
Keywords: Market consistent valuation, overlapping generations, forward risk adjusted measure
JEL Classification: G12, G13, G23
Suggested Citation: Suggested Citation