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Equity-linked pension schemes with guarantees

Author

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  • Nielsen, J. Aase
  • Sandmann, Klaus
  • Schlögl, Erik

Abstract

This paper analyses the relationship between the level of a return guarantee in an equity-linked pension scheme and the proportion of an investor’s contribution needed to finance this guarantee. Three types of schemes are considered: investment guarantee, contribution guarantee and surplus participation. The evaluation of each scheme involves pricing an Asian option, for which relatively tight upper and lower bounds can be calculated in a numerically efficient manner.

Suggested Citation

  • Nielsen, J. Aase & Sandmann, Klaus & Schlögl, Erik, 2011. "Equity-linked pension schemes with guarantees," Insurance: Mathematics and Economics, Elsevier, vol. 49(3), pages 547-564.
  • Handle: RePEc:eee:insuma:v:49:y:2011:i:3:p:547-564
    DOI: 10.1016/j.insmatheco.2011.08.012
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    References listed on IDEAS

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    Cited by:

    1. Mahayni, Antje & Schneider, Judith C., 2012. "Variable annuities and the option to seek risk: Why should you diversify?," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2417-2428.
    2. repec:kap:revdev:v:20:y:2017:i:3:d:10.1007_s11147-017-9131-9 is not listed on IDEAS
    3. Mahayni, Antje & Schoenmakers, John G.M., 2011. "Minimum return guarantees with fund switching rights—An optimal stopping problem," Journal of Economic Dynamics and Control, Elsevier, vol. 35(11), pages 1880-1897.
    4. Antje Mahayni & Judith C. Schneider, 2016. "Minimum return guarantees, investment caps, and investment flexibility," Review of Derivatives Research, Springer, vol. 19(2), pages 85-111, July.
    5. Branger, Nicole & Mahayni, Antje & Schneider, Judith C., 2010. "On the optimal design of insurance contracts with guarantees," Insurance: Mathematics and Economics, Elsevier, vol. 46(3), pages 485-492, June.
    6. Ankirchner, Stefan & Schneider, Judith C. & Schweizer, Nikolaus, 2014. "Cross-hedging minimum return guarantees: Basis and liquidity risks," Journal of Economic Dynamics and Control, Elsevier, vol. 41(C), pages 93-109.

    More about this item

    Keywords

    Pension funds; Forward risk adjusted measure; Asian option;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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