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Pension regulation and the market value of pension liabilities - a contingent claims analysis using Parisian options

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  • Dirk Broeders
  • An Chen
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Abstract

We analyze the market-consistent valuation of pension liabilities in a contingent claim framework whereby a knock-out barrier feature is applied to capture early regulatory closure of a pension plan. We investigate two cases which we call �immediate closure procedure" and �delayed closure procedure". In an immediate closure procedure, when the assets value hits the regulatory boundary, the pension plan is terminated immediately. Whereas in a delayed closure procedure, a grace period is given to the pension fund plan for reorganization and recovery before premature closure is executed. The framework is then used to construct fair pension deals.

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File URL: http://www.dnb.nl/binaries/Working%20Paper%20No%20183-2008_tcm46-189108.pdf
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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 183.

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Date of creation: Oct 2008
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Handle: RePEc:dnb:dnbwpp:183

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Keywords: Pension funds; DB and DC pension plans; barrier options; Parisian barrier options.;

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Citations

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Cited by:
  1. Dirk Broeders & An Chen & Birgit Koos, 2009. "An institutional evaluation of pension funds and life insurance companies," DNB Working Papers 227, Netherlands Central Bank, Research Department.
  2. Dirk Broeders & An Chen & David Rijsbergen, 2011. "Valuation of Liabilities in Hybrid Pension Plans," DNB Working Papers 326, Netherlands Central Bank, Research Department.
  3. Dirk Broeders & Paul Hilbers & David Rijsbergen & Ningli Shen, 2014. "What Drives Pension Indexation in Turbulent Times? An Empirical Examination of Dutch Pension Funds," De Economist, Springer, vol. 162(1), pages 41-70, March.
  4. An, Heng & Huang, Zhaodan & Zhang, Ting, 2013. "What determines corporate pension fund risk-taking strategy?," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 597-613.
  5. Horneff, Wolfram & Maurer, Raimond & Rogalla, Ralph, 2010. "Dynamic portfolio choice with deferred annuities," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2652-2664, November.

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