Valuation of Liabilities in Hybrid Pension Plans

37 Pages Posted: 15 Dec 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: December 1, 2011

Abstract

In this paper we derive an analytic valuation formula for a generalized form of liabilities in hybrid pension plans taking account of both equity and interest rate risk. Comparative statistics are carried out to show the relevance of some key parameters in defining the hybrid pension plans, particularly the indicator of hybridity and the equity allocation in the pension fund’s investment policy. We find that both the level of hybridity and the equity allocation of the pension fund impact the value of hybrid plan liabilities. This should affect the negotiation between employers and employees on total labor compensation.

Keywords: Market consistent valuation, overlapping generations, forward risk adjusted measure, Vasicek

JEL Classification: G12, G13, G23

Suggested Citation

Broeders, Dirk and Chen, An and Rijsbergen, David R., Valuation of Liabilities in Hybrid Pension Plans (December 1, 2011). De Nederlandsche Bank Working Paper No. 326. Available at SSRN: https://ssrn.com/abstract=1972974 or http://dx.doi.org/10.2139/ssrn.1972974

Dirk Broeders (Contact Author)

De Nederlandsche Bank ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

HOME PAGE: http://www.dnb.nl

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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