Pricing pension buy-outs under stochastic interest and mortality rates
| Autor: | Yeliz Yolcu-Okur, Ayşe Arik, Şule Şahin, Ömür Uğur |
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| Rok vydání: | 2017 |
| Předmět: |
Statistics and Probability
Economics and Econometrics Pension Vasicek model Actuarial science Financial asset Stochastic modelling Monte Carlo method 010103 numerical & computational mathematics 01 natural sciences Interest rate risk 010104 statistics & probability Short rate 0101 mathematics Statistics Probability and Uncertainty Valuation (finance) |
| Zdroj: | Scandinavian Actuarial Journal |
| ISSN: | 1651-2030 0346-1238 |
| DOI: | 10.1080/03461238.2017.1328370 |
| Popis: | Pension buy-out is a special financial asset issued to offload the pension liabilities holistically in exchange for an upfront premium. In this paper, we concentrate on the pricing of pension buy-outs under dependence between interest and mortality rates risks with an explicit correlation structure in a continuous time framework. Change of measure technique is invoked to simplify the valuation. We also present how to obtain the buy-out price for a hypothetical benefit pension scheme using stochastic models to govern the dynamics of interest and mortality rates. Besides employing a non-mean reverting specification of the Ornstein–Uhlenbeck process and a continuous version of Lee–Carter setting for modeling mortality rates, we prefer Vasicek and Cox–Ingersoll–Ross models for short rates. We provide numerical results under various scenarios along with the confidence intervals using Monte Carlo simulations. |
| Databáze: | OpenAIRE |
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