Pricing Buy-Ins and Buy-Outs
Journal of Risk and Insurance, Forthcoming
30 Pages Posted: 11 Mar 2016 Last revised: 7 May 2016
Date Written: March 9, 2016
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
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