Early Warning to Insolvency in the Pension Fund: The French Case
AbstractThe financial equilibrium of pension funds relies on the appropriate computation of retirement benefits, taking account of future payments and discount rates. Short-term errors in the commitment for retirement benefits, ill-suited investment in the stock market, or improper mixture with pay-as-you-go payments have long-term consequences and may lead the pension fund to insolvency. The differential equation governing the current assets shows the respective weights associated with the error on the interest rate, the error on the extra bonus, and the error made in forecasting mortality. These weights are estimated through simulations. A short follow-up is sufficient to estimate the three errors. A threshold for the extra interest rate to be earned on the financial market is given to counter-balance the extra bonus when mortality is forecast correctly.
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Bibliographic InfoArticle provided by MDPI, Open Access Journal in its journal Risks.
Volume (Year): 1 (2013)
Issue (Month): 1 (January)
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pension funding; retirement benefits; control differential equation; misestimation of mortality;
Find related papers by JEL classification:
- C - Mathematical and Quantitative Methods
- G0 - Financial Economics - - General
- G1 - Financial Economics - - General Financial Markets
- G2 - Financial Economics - - Financial Institutions and Services
- G3 - Financial Economics - - Corporate Finance and Governance
- M2 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics
- M4 - Business Administration and Business Economics; Marketing; Accounting - - Accounting
- K2 - Law and Economics - - Regulation and Business Law
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