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Demographic Risk in Pay-as-You-Go Pension Funds

NEW FRONTIERS IN INSURANCE AND BANK RISK MANAGEMENT, pp. 85-95, Mc Graw-Hill Italia, 2009

Posted: 23 Feb 2012  

Roberta Melis

Università degli Studi di Sassari

Alessandro Trudda

Università degli Studi di Sassari

Date Written: 2009

Abstract

The aim of this paper is to analyze a particular demographic risk in pay-as-you-go (PAYG) pension funds. We focus on the influence of the demographic variable 'new entrants' and on its impact on the future evolution of the fund. The model adapts well to a closed pension fund which operates according to the PAYG rule. The global asset return and the new entrants variation rate are described by autoregressive processes. Numerical applications are carried out using the data of the Italian Chartered Accountants' Pension Fund. The sensitive analysis demonstrates that the new entrants variation rate has a stronger influence on the final value of the fund than the global asset return.

Keywords: pension funds, PAYG, demographic risk, stochastic new entrants

JEL Classification: G23, H55, J11

Suggested Citation

Melis, Roberta and Trudda, Alessandro, Demographic Risk in Pay-as-You-Go Pension Funds (2009). NEW FRONTIERS IN INSURANCE AND BANK RISK MANAGEMENT, pp. 85-95, Mc Graw-Hill Italia, 2009. Available at SSRN: https://ssrn.com/abstract=2009801

Roberta Melis (Contact Author)

Università degli Studi di Sassari ( email )

Piazza Universita
Sassari, 07100
Italy

Alessandro Trudda

Università degli Studi di Sassari ( email )

Piazza Universita
Sassari, 07100
Italy

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