Minimum Protection in DC Funding Pension Plans and Margrabe Options

Pierre Devolder and Sébastien De Valeriola
Additional contact information
Pierre Devolder: Institute of Statistic, Biostatistic and Actuarial Science (ISBA), Université catholique de Louvain (UCL), Voie du Roman Pays, 20, 1348 Louvain-la-Neuve, Belgium
Sébastien De Valeriola: Institute of Statistic, Biostatistic and Actuarial Science (ISBA), Université catholique de Louvain (UCL), Voie du Roman Pays, 20, 1348 Louvain-la-Neuve, Belgium

Risks, 2017, vol. 5, issue 1, 1-14

Abstract: The regulation on the Belgian occupational pension schemes has been recently changed. The new law allows for employers to choose between two different types of guarantees to offer to their affiliates. In this paper, we address the question arising naturally: which of the two guarantees is the best one? In order to answer that question, we set up a stochastic model and use financial pricing tools to compare the methods. More specifically, we link the pension liabilities to a portfolio of financial assets and compute the price of exchange options through the Margrabe formula.

Keywords: pensions; Defined Contributions; guaranteed rate; option theory; Margrabe formula (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.mdpi.com/2227-9091/5/1/5/pdf (application/pdf)
https://www.mdpi.com/2227-9091/5/1/5/ (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:5:y:2017:i:1:p:5-:d:88075

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 ().