Download this Paper Open PDF in Browser

International Pension Swaps

Boston University School of Management Working Paper No. 02-01

11 Pages Posted: 1 Nov 2001  

Zvi Bodie

Boston University - Department of Finance & Economics

Robert C. Merton

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER); Harvard Business School - Finance Unit

Multiple version iconThere are 2 versions of this paper

Date Written: January 2002

Abstract

During the past twenty years, swap contracts have become key financial "adapters" linking diverse national financial systems to the global financial network. Today banks and investment companies around the world use swaps extensively to manage their currency, interest-rate, and equity-market risks and to lower their transaction costs. Yet pension funds, which have grown rapidly over that same 20-year period, hardly use swaps at all. This paper suggests how pension funds could use swaps to achieve the risk-sharing benefits of broad international diversification and hedging while avoiding the "flight" of scarce domestic capital to other countries. The paper also shows how swaps can be used to lower the risks of expropriation and to lower the other transaction costs of investing in other countries.

Keywords: Pensions, diversification, risk-sharing, swaps

JEL Classification: F3, G15, G18, G23, K23, K33

Suggested Citation

Bodie, Zvi and Merton, Robert C., International Pension Swaps (January 2002). Boston University School of Management Working Paper No. 02-01. Available at SSRN: https://ssrn.com/abstract=288781 or http://dx.doi.org/10.2139/ssrn.288781

Zvi Bodie (Contact Author)

Boston University - Department of Finance & Economics ( email )

United States

HOME PAGE: http://www.zvibodie.com

Robert C. Merton

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Avenue
E62-634
Cambridge, MA 02139-4307
United States
617 715 4866 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6678 (Phone)

Paper statistics

Downloads
1,074
Rank
15,825
Abstract Views
4,840