Abstract
AbstractIn this paper, we study the optimal VIX-linked target benefit (TB) pension design. By applying the dynamic programming approach, we show the optimal risk-sharing structure for the benefit payment exhibits a linear form that consists of three components: (1) a model-robust performance adjustment, (2) a counter-cyclical volatility adjustment that depends on the VIX index, and (3) a TB level that is partially indexed to the cost-of-living adjustment. Differences between our results and the previous literature are highlighted via both theoretical derivations and numerical illustrations.
Publisher
Cambridge University Press (CUP)
Subject
Economics and Econometrics,Finance,Accounting
Reference46 articles.
1. Voluntary participation and intergenerational risk sharing in a funded pension system
2. A Theory of the Term Structure of Interest Rates
3. American Academy of Actuaries (2012) “The 80% Pension funding standard Myth.” Issue Brief.
4. Optimal investment for insurer with jump-diffusion risk process;Yang;Insurance: Mathematics and Economics,2005
5. Optimal consumption and asset allocation with unknown income growth