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Pension Fund Management and Conditional Indexation

Published online by Cambridge University Press:  09 August 2013

Torsten Kleinow
Torsten Kleinow*
Affiliation:
Department of Actuarial Mathematics and Statistics and, the Maxwell Institute for Mathematical Sciences, School of Mathematical and Computer Sciences, Heriot-Watt University, Edinburgh, EH14 4AS, United Kingdom, E-mail: t.kleinow@hw.ac.uk
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Abstract

Conditional indexation offers a middle way between defined benefit and defined contribution pension schemes. In this paper, we consider a fully-funded pension scheme with conditional indexation. We show how the pension fund can be managed to reduce the risks associated with promised pension benefits when declared benefits are adjusted regularly during the working life. In particular, we derive an investment strategy that provides protection against underfunding at retirement and which is self-financing on average. Our results are illustrated in an extensive simulation study.

Keywords

Conditional IndexationFully Funded PensionPension Fund ManagementQuadratic Hedging
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 41 , Issue 1 , May 2011 , pp. 61 - 86
Copyright
Copyright © International Actuarial Association 2011

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