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

  • Dirk Broeders
  • An Chen

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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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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