Valuation of pension liabilities in incomplete markets
AbstractThis paper discusses the valuation of wage-indexed pension fund liabilities. Valuation by replication with market instruments is typically not possible as there are no wage-indexed assets. This paper discusses several methods to find a value in such incomplete markets and advocates utility-based valuation. This approach implies a simple adjustment on the discount factor that can be used to calculate the value of wage indexed liabilities.
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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 067.
Date of creation: Dec 2005
Date of revision:
incomplete markets; pension funds.;
Other versions of this item:
- De Jong, Frank, 2008. "Valuation of pension liabilities in incomplete markets," Journal of Pension Economics and Finance, Cambridge University Press, vol. 7(03), pages 277-294, November.
- G1 - Financial Economics - - General Financial Markets
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-05 (All new papers)
- NEP-FIN-2006-02-05 (Finance)
- NEP-FMK-2006-02-05 (Financial Markets)
- NEP-UPT-2006-02-05 (Utility Models & Prospect Theory)
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