### Abstract

Lingua originale | English |
---|---|

pagine (da-a) | 267-279 |

Numero di pagine | 13 |

Rivista | INSURANCE MATHEMATICS & ECONOMICS |

Stato di pubblicazione | Published - 2015 |

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### All Science Journal Classification (ASJC) codes

- Statistics and Probability
- Economics and Econometrics
- Statistics, Probability and Uncertainty

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*INSURANCE MATHEMATICS & ECONOMICS*, 267-279.

**Designing and pricing guarantee options in defined contribution pension plans.** / Consiglio, Andrea; Tumminello, Michele; Zenios, Stavros A.

Risultato della ricerca: Article

*INSURANCE MATHEMATICS & ECONOMICS*, pagg. 267-279.

}

TY - JOUR

T1 - Designing and pricing guarantee options in defined contribution pension plans

AU - Consiglio, Andrea

AU - Tumminello, Michele

AU - Zenios, Stavros A.

PY - 2015

Y1 - 2015

N2 - The shift from defined benefit (DB) to defined contribution (DC) is pervasive among pension funds, due to demographic changes and macroeconomic pressures. In DB all risks are borne by the provider, while in plain vanilla DC all risks are borne by the beneficiary. However, for DC to provide income security some kind of guarantee is required. A minimum guarantee clause can be modeled as a put option written on some underlying reference portfolio and we develop a discrete model that selects the reference portfolio to minimise the cost of a guarantee. While the relation DB-DC is typically viewed as a binary one, the model shows how to price a wide range of guarantees creating a continuum between DB and DC. Integrating guarantee pricing with asset allocation decision is useful to both pension fund managers and regulators. The former are given a yardstick to assess if a given asset portfolio is fit-for-purpose; the latter can assess differences of specific reference funds with respect to the optimal one, signalling possible cases of moral hazard. We develop the model and report numerical results to illustrate its uses.

AB - The shift from defined benefit (DB) to defined contribution (DC) is pervasive among pension funds, due to demographic changes and macroeconomic pressures. In DB all risks are borne by the provider, while in plain vanilla DC all risks are borne by the beneficiary. However, for DC to provide income security some kind of guarantee is required. A minimum guarantee clause can be modeled as a put option written on some underlying reference portfolio and we develop a discrete model that selects the reference portfolio to minimise the cost of a guarantee. While the relation DB-DC is typically viewed as a binary one, the model shows how to price a wide range of guarantees creating a continuum between DB and DC. Integrating guarantee pricing with asset allocation decision is useful to both pension fund managers and regulators. The former are given a yardstick to assess if a given asset portfolio is fit-for-purpose; the latter can assess differences of specific reference funds with respect to the optimal one, signalling possible cases of moral hazard. We develop the model and report numerical results to illustrate its uses.

UR - http://hdl.handle.net/10447/149798

M3 - Article

SP - 267

EP - 279

JO - INSURANCE MATHEMATICS & ECONOMICS

JF - INSURANCE MATHEMATICS & ECONOMICS

SN - 0167-6687

ER -