Optimal portfolio allocation for corporate pension funds

David Miles and David McCarthy

No 8198, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We model the asset allocation decision of a stylized corporate defined benefit pension plan in the presence of hedgeable and unhedgeable risks. We assume that plan fiduciaries--who make the asset allocation decision--face non-linear payoffs linked to the plan?s funding status because of the presence of pension insurance and a sponsoring employer who may share any shortfall or pension surplus. We find that even simple asymmetries in payoffs have large and highly persistent effects on asset allocation, while unhedgeable risks exert only a small effect. We conclude that institutional details are crucial in understanding DB pension asset allocation.

Keywords: Pension funds; Portfolio allocation; Corporate balance sheets (search for similar items in EconPapers)
JEL-codes: G11 G23 G32 (search for similar items in EconPapers)
Date: 2011-01
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Optimal Portfolio Allocation for Corporate Pension Funds (2013)
Working Paper: Optimal Portfolio Allocation for Corporate Pension Funds (2007)
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