Equity-Linked Pension Schemes with Guarantees

J. Aase Nielsen, Klaus Sandmann and Erik Schlogl
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J. Aase Nielsen: Department of Mathematical Sciences, University of Aarhus

No 270, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

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 participation surplus. 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. We find a negative (and for two contracts pecifications also concave) relationship between the participation in the surplus return of the investment strategy and the guarantee level in terms of a minimum rate of return. Furthermore, the introduction of a possibility of early termination of the contract (e.g. due to the death of the investor) has no qualitative and very little quantitative impact on this relationship.

Keywords: pension funds; forward risk adjusted measure; Asian option (search for similar items in EconPapers)
JEL-codes: G13 G23 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2010-01-01
New Economics Papers: this item is included in nep-sea
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Citations: View citations in EconPapers (2)

Published as: Nielsen, J. A., Sandman, K. and Schlogl, E., 2011, "Equity-linked pension schemes with guarantees", Insurance: Mathematics and Economics, 49(3), 547-564.

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https://www.uts.edu.au/sites/default/files/qfr-archive-03/QFR-rp270.pdf (application/pdf)

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Journal Article: Equity-linked pension schemes with guarantees (2011)
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