Pricing Buy-Ins and Buy-Outs

Journal of Risk and Insurance, Forthcoming

30 Pages Posted: 11 Mar 2016 Last revised: 7 May 2016

See all articles by Yijia Lin

Yijia Lin

University of Nebraska at Lincoln - Department of Finance

Tianxiang Shi

Temple University - Risk Management & Insurance & Actuarial Science

Ayse Arik

Hacettepe University

Date Written: March 9, 2016

Abstract

Pension buy-ins and buy-outs have become an important aspect of managing pension risk in recent years. As a step toward understanding these pension de-risking instruments, we develop models for pricing investment risk and longevity risk embedded in pension buy-ins and buy-outs. We also bring a contingent-claims framework to price credit risk of buy-in bulk annuities. Overall, our model can be used to assess the pricing of investment, longevity, and credit risks being transferred in pension buy-in and buy-out transactions.

Keywords: defined benefit pension plan, pricing, buy-ins, buy-outs

Suggested Citation

Lin, Yijia and Shi, Tianxiang and Arik, Ayse, Pricing Buy-Ins and Buy-Outs (March 9, 2016). Journal of Risk and Insurance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2745368 or http://dx.doi.org/10.2139/ssrn.2745368

Yijia Lin (Contact Author)

University of Nebraska at Lincoln - Department of Finance ( email )

Lincoln, NE 68588-0490
United States

Tianxiang Shi

Temple University - Risk Management & Insurance & Actuarial Science ( email )

Fox School of Business and Management
1801 Liacouras Walk
Philadelphia, PA 19122
United States

Ayse Arik

Hacettepe University ( email )

Ankara
Turkey

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