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A comparison of catching-up premium rate models

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Author Info
Jan Bonenkamp ()
Abstract

This paper discusses and compares two models for the catching-up premium rate, a partial adjustment (PA) model and a linear quadratic regulator (LQR) model. The models are different in that the PA model is a solution to a static optimisation problem, while the optimisation problem in the LQR model is dynamic. With respect to the economic principle of premium smoothing, it turns out that the LQR model is the preferable model. In addition, the simulation outcomes of this model are more consistent with the institutions of the Dutch pension system.

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File URL: http://www.cpb.nl/eng/pub/cpbreeksen/memorandum/127/memo127.pdf
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Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Memoranda with number 127.

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Date of creation: Oct 2005
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Handle: RePEc:cpb:memodm:127

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Related research
Keywords: linear quadratic regulator model; partial adjustment model; premium smoothing;

Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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  1. Nick Draper & Alex Armstrong, 2007. "GAMMA, a Simulation Model for Ageing, Pensions and Public Finances," CPB Documents 147, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
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This page was last updated on 2009-11-20.

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