Capital structure choices, pension fund allocation decisions and the rational pricing of liability streams

Lionel Martellini and Vincent Milhau

Journal of Pension Economics and Finance, 2022, vol. 21, issue 3, 425-445

Abstract: This paper introduces an integrated asset-liability management model that allows for the joint quantitative analysis of capital structure choices, pension fund allocation decisions and rational pricing of liabilities. We confirm that capital structure decisions have a substantial impact on the value of pension claims, and we provide a quantitative assessment of the mispricing induced by the use of an arbitrary regulatory discount rate. We also present a quantitative assessment of the asset substitution effect implied by a change in the pension fund allocation to risky assets taking place after the corporate and pension obligation claims have been issued.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jpenef:v:21:y:2022:i:3:p:425-445_7

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