1st Edition

Pension Fund Risk Management Financial and Actuarial Modeling

    764 Pages 94 B/W Illustrations
    by Chapman & Hall

    As pension fund systems decrease and dependency ratios increase, risk management is becoming more complex in public and private pension plans. Pension Fund Risk Management: Financial and Actuarial Modeling sheds new light on the current state of pension fund risk management and provides new technical tools for addressing pension risk from an integrated point of view.

    Divided into four parts, the book first presents the correct measurement of risk in pension funds, fund dynamics under a performance-oriented arrangement, an attribution model for monitoring the performance and risk of a defined benefit (DB) pension fund, and an optimal investment problem of a defined contribution (DC) pension fund under inflationary risk. It also describes a pension plan from a dynamic optimization viewpoint, the optimal asset allocation of U.S. pension funds, the identification of stakeholders’ risks, value-at-risk (VaR) methodology, and various effects on the asset allocation of DB pension schemes.

    The second section focuses on the effects of uncertainty on employer-provided DB private pension plan liabilities; wage-based lump sum payments by death, retirement, or dismissal by the employer; fundamental retirement changes; occupational pension insurance in Germany; and longevity risk securitization in pension schemes.

    In the third part, the book examines employers’ risks, accountability rules and regulations, useful actuarial analysis instruments, risk-based solvency regime in the Netherlands, and the impact of the 2008 global financial crisis on pension participants.

    The final part covers DB pension freezes and terminations of plans, the two-pillar social security system of Italy, the Greek social security system, the effect of a company’s unfunded pension liabilities on its stock market valuation, and the returns of Spanish balanced pension plans and portfolio performance.

    With contributions from well-known, international academics and professionals, this book will assist pension fund executives, risk managers, consultants, and academic researchers in attaining a clear picture of the integration of risks in the pension world. It offers a comprehensive, contemporary account of how to handle the risks involved with pension funds.

    Financial Risk Management
    Quantifying Investment Risk in Defined Benefit Pension Plans, Shane Francis Whelan

    Investment Decision in Defined Contribution Pension Schemes Incorporating Incentive Mechanism, Bill Shih-Chieh Chang and Evan Ya-Wen Hwang

    Performance and Risk Measurement for Pension Funds, Auke Plantinga

    Optimal Investment for a Pension Fund under Inflation Risk, Aihua Zhang

    Pension Funds under Inflation Risk, Aihua Zhang

    Mean-Variance Management in Stochastic Aggregated Pension Funds with Nonconstant Interest Rates, Ricardo Josa Fombellida

    Dynamic Asset and Liability Management, Ricardo Matos Chaim

    Pension Fund Asset Allocation under Uncertainty, Wilma de Groot and Laurens Swinkels

    Different Stakeholder’s Risks in DB Pension Funds, Theo Kocken and Anne de Kreuk

    Financial Risk in Pension Funds: Application of Value at Risk Methodology, Marcin Fedor

    Pension Scheme Asset Allocation with Taxation Arbitrage, Risk Sharing, and Default Insurance, Charles Sutcliffe

    Technical Risk Management
    Longevity Risk and Private Pensions, Pablo Antolin

    Actuarial Funding of Dismissal and Resignation Risks, Werner Hürlimann

    The Retirement Decision: Current Influences on the Timing of Retirement among Older Workers, Gaobo Pang, Mark J. Warshawsky, and Ben Weitzer

    Insuring Defined Benefit Plans in Germany, Ferdinand Mager and Christian Schmieder

    The Securitization of Longevity Risk in Pension Schemes: The Case of Italy, Susanna Levantesi, Massimiliano Menzietti, and Tiziana Torri

    Regulation and Solvency Topics
    Corporate Risk Management and Pension Asset Allocation, Yong Li

    Competition among Pressure Groups over the Determination of UK Pension Fund Accounting Rules, Paul John Marcel Klumpes and Stuart Manson

    Improving the Equity, Transparency, and Solvency of Pay-as-You-Go Pension Systems: NDCs, the AB, and ABMs, Carlos Vidal-Meliá, María del Carmen Boado-Penas, and Ole Settergren

    Risk-Based Supervision of Pension Funds in the Netherlands, Dirk Broeders and Marc Pröpper

    Policy Considerations for Hedging Risks in Mandatory Defined Contribution Pensions through Better Default Options, Gregorio Impavido

    Pension Risk and Household Saving over the Life Cycle, David A. Love and Paul A. Smith

    International Experience in Pension Fund Risk Management
    Public and Private DC Pension Schemes, Termination Indemnities, and Optimal Funding of Pension System in Italy, Marco Micocci, Giovanni B. Masala, and Giuseppina Cannas

    Efficiency Analysis in the Spanish Pension Funds Industry: A Frontier Approach, Carmen-Pilar Martí-Ballester and Diego Prior-Jiménez

    Pension Funds under Investment Constraints: An Assessment of the Opportunity Cost to the Greek Social Security System, Nikolaos T. Milonas, George A. Papachristou, and Theodore A. Roupas

    Pension Fund Deficits and Stock Market Efficiency: Evidence from the

    United Kingdom, Weixi Liu and Ian Tonks

    Return-Based Style Analysis Applied to Spanish Balanced Pension Plans, Laura Andreu, Cristina Ortiz, José Luis Sarto, and Luis Vicente



    Marco Micocci is a professor of financial mathematics and actuarial science in the Faculty of Economics at the University of Cagliari in Italy.

    Greg N. Gregoriou is a professor of finance in the School of Business and Economics at the State University of New York in Plattsburgh.

    Giovanni Batista Masala is a researcher of mathematical methods in the Faculty of Economics at the University of Cagliari in Italy.

    A strength of this approach is the variety of angles and insights which it provides — there were no shortage of ideas. … This book is perfect for those who would like a broad view of the current landscape or who have a question that is specifically tackled by one of the chapters … this book covered a lot of interesting material and concepts, and had some impressive chapters. … well worth dipping into.
    —John Hatchett, Annals of Actuarial Science, Vol. 5, 2011