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Pension Funds as Institutions for Intertemporal Risk Transfer

abstract A continuous time overlapping generation model is used to analyse defined-contribution pension plans. Without intergenerational risk transfer between employees the optimal investment strategy results from the Merton model. Introducing intergenerational risk transfer leads to an increase in the risk tolerance of future employees and allows to improve their anticipated expected utility resulting from accrued retirement benefits. Of course, this leads to a risk of temporary underfunding. But even for an underfunded pension plan one can guarantee that in the long run, the median of the funding plan exceeds one.
   
type journal paper
   
keywords Portfolio Choice; Pension finance; Defined-contribution pension fund; Intergenerational risk transfer; Overlapping generation model
   
language English
kind of paper journal article
date of appearance 2008
journal Insurance: Mathematics and Economics
publisher Elsevier
ISSN 0167-6687
number of issue 42
page(s) 1000-1012
review blind review
   
citation Baumann, R., & Müller, H. (2008). Pension Funds as Institutions for Intertemporal Risk Transfer. Insurance: Mathematics and Economics(42), 1000-1012.