Fair and Sustainable Pension System: Market Equilibrium Using Implied Options

Ishay Wolf () and Lorena Caridad López del Río
Additional contact information
Ishay Wolf: Faculty of Business Administration, Ono Academic College, Kiryat Ono P.O. Box 759, Israel
Lorena Caridad López del Río: Department of Statistic, Econometrics, Operational Research, Business Organization and Applied Economics, University of Córdoba, 14002 Córdoba, Spain

Risks, 2024, vol. 12, issue 8, 1-12

Abstract: This study contributes to the discussion about a fair and balanced pension system with a collectively funded pension scheme or social security and a defined contribution pillar. With an invigorated risk approach using financial option positions, it considers the variance of socioeconomic interests of different society-earning cohorts. By that, it enables the assumption of un-uniformity in interests about the fair and sustainable pension design. Specifically, we claim that the alternative cost of hedging the ideal position to the counterparty position studies the implied risks and returns that participants are willing to absorb and hence may lead to a fair compromise when there are different interests. The novelty of the introduced method is mainly based on the variety of participants’ risks and not on the utility function. Accordingly, we spare the discussion about the right shape of the utility function and the proper calibrations.

Keywords: defined contribution (DC); pay as you go (PAYG); put option; social security (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2227-9091/12/8/127/pdf (application/pdf)
https://www.mdpi.com/2227-9091/12/8/127/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:12:y:2024:i:8:p:127-:d:1452122

Access Statistics for this article

Risks is currently edited by Mr. Claude Zhang

More articles in Risks from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().