A mathematical model for managing equity-linked pensions

Pension fund companies manage and invest large amounts of money on behalf of their members. In return for their contributions, members expect a benefit at termination of their contract. Due to the volatile nature of returns that pension funds attain, pension companies started attaching a minimum guaranteed amount to member’s benefits. In this mini-thesis we look at the pioneering work of Brennan and Schwartz [10] for pricing these minimum guarantees. The model they developed prices these minimum guarantees using option pricing theory. We also look at the model proposed by Deelstra et al. [13] which prices minimum guarantees in a stochastic financial setting. We conclude this mini-thesis with new contributions where we look at simple alternative ways of pricing minimum guarantees. We conclude this mini-thesis with an approach, related to the work of Brennan and Schwartz [10], whereby the member’s benefit is maximised for a given minimum guaranteed amount, which comprises of multi-period guarantees. We formulate a method to find the optimal stream of these multi-period guarantees.

Grantor dc:publisher.institution

University of the Western Cape

Year dc:date.issued

2007

Author dc:creator

• Elmerie, Julie

• pension fund
• defined benefit
• defined contribution
• minimum guarantee
• maximum benefit

Licence

• https://uwcscholar.uwc.ac.za/bitstreams/3ecb2717-8d63-4006-99d6-72a553862b32/download