Valuation of Liabilities in Hybrid Pension Plans

30 Pages Posted: 30 Sep 2011

See all articles by Dirk Broeders

Dirk Broeders

De Nederlandsche Bank; Maastricht University

An Chen

University of Ulm

David R. Rijsbergen

De Nederlandsche Bank

Multiple version iconThere are 2 versions of this paper

Date Written: September 15, 2011

Abstract

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

Broeders, Dirk and Chen, An and Rijsbergen, David R., Valuation of Liabilities in Hybrid Pension Plans (September 15, 2011). Midwest Finance Association 2012 Annual Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1927935 or http://dx.doi.org/10.2139/ssrn.1927935

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

HOME PAGE: http://https://www.maastrichtuniversity.nl/about-um/faculties/school-business-and-economics

An Chen

University of Ulm ( email )

Helmholtzstrasse 20
Ulm, D-89081
Germany

HOME PAGE: http://www.uni-ulm.de/mawi/ivw/team

David R. Rijsbergen

De Nederlandsche Bank ( email )

Westeinde 1
Amsterdam, 1017 ZN
Netherlands

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