Risk-based premium evaluation with jump diffusion process for PBGC

Lin Xie, Wei Wang, Zhixin Yang and Nan Zhang

Communications in Statistics - Theory and Methods, 2023, vol. 52, issue 6, 1854-1869

Abstract: In this paper, we mainly focus on the valuation for the risk-based premium of private pension plan with termination provided by the Pension Benefit Guaranty Corporation (PBGC). The dynamics for assets of both the pension fund and the sponsoring company are described by jump diffusion processes. We obtain the pricing formula for the risk-based premium with premature termination and analyze the impact of certain parameters on the premium through numerical simulations. Results indicate that the risk-based premium for PBGC increases with the increase of the risky asset investment proportion, the volatility of risky asset, and pension benefits.

Date: 2023
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DOI: 10.1080/03610926.2021.1939381

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