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Deterministic Modeling of Defined-Contribution Pension Funds

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  • Zaki Khorasanee

Abstract

Formulas are derived to model the response of a money purchase, defined-contribution pension fund to the following types of investment shock: (1) an instantaneous fall in the value of the fund assets and (2) a permanent, uniform reduction in the rate of earned interest. An alternative defined-contribution fund, incorporating a variable defined-benefit scale, is then proposed, and its responses to the same investment shocks are compared with those of the money purchase fund. The comparison shows that the variable defined-benefit approach offers a useful alternative to the money purchase principle for defined-contribution pension funds.

Suggested Citation

  • Zaki Khorasanee, 1997. "Deterministic Modeling of Defined-Contribution Pension Funds," North American Actuarial Journal, Taylor & Francis Journals, vol. 1(4), pages 83-99.
    • Handle: RePEc:taf:uaajxx:v:1:y:1997:i:4:p:83-99
    DOI: 10.1080/10920277.1997.10595653
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