Valuation of liabilities in hybrid pension plans

Dirk Broeders, An Chen and David Rijsbergen

Applied Financial Economics, 2013, vol. 23, issue 15, 1215-1229

Abstract: Contemporary pension plans are often hybrid pension plans, a mixture of defined benefit and defined contribution plans. In this article, we model a continuum of stylized hybrid pension plans in a run-off pension fund and value these pension liabilities taking account of both equity and interest rate risk. We achieve analytic valuation formulae and examine how the liability evolves over time. Comparative statistics are carried out to show the relevance of some key parameters in defining the hybrid pension plans, particularly the indicator of hybridity and the equity allocation in the pension fund's investment policy.

Date: 2013
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DOI: 10.1080/09603107.2013.788778

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