Traditional ALM first sets the policy parameters and then assesses the impact on some sub-set of risk and return measures. We propose a method to ‘invert' the traditional ALM approach: first formulate the desired level of risk and return measures and then systematically search through the...

This paper defines an approximation to the value of funding ratio put options for pension funds. This option is, by construction, the ideal option to hedge the risk of a funding ratio falling below some required minimum level. It's value can be used for several applications, for example as a...

A quantitative analysis on the pricing of forward starting options under stochastic volatility and stochastic interest rates is performed. The main finding is that forward starting options not only depend on future smiles, but also directly on the evolution of the interest rates as well as the...

This paper reconsiders the predictions of the standard option pricing models in the context of incomplete markets. We relax the completeness assumption of the Black-Scholes (1973) model and as an immediate consequence we can no longer construct a replicating portfolio to price the option....

Models can be wrong and recognising their limitations is important in financial and economic decision making under uncertainty. Robust strategies, which are least sensitive to perturbations of the underlying model, take uncertainty into account. Finding the explicit set of alternative models...

We search for a trading strategy and the associated robust price of unhedgeable assets in incomplete markets under the acknowledgement of model uncertainty. Our set-up is that we postulate an agent who wants to maximise the expected surplus by choosing an optimal investment strategy....

We extrapolate interest rate yield curves for the purpose of discounting very long-dated pension liabilities and insurance contracts. The extrapolation uses a no-arbitrage term structure model estimated on liquid euro swap instruments with maturities between 5 and 20 years. The extrapolation...

In this paper we propose a simulation algorithm for the Schöbel-Zhu (1999) model and its extension to include stochastic interest rates, the Schöbel-Zhu-Hull-White model as considered in Van Haastrecht et al. (2009). Both schemes are derived by analyzing the lessons learned from the Andersen...

This paper compares the UK and Dutch occupational defined-benefit pension policies using the holistic balance sheet (HBS) framework. The UK DB pension system differs from the Dutch one in terms of the steering tools and adjustment mechanisms. In addition to the sponsor guarantee, the UK system...

We consider evaluation methods for payoffs with an inherent financial risk as encountered for instance for portfolios held by pension funds and insurance companies. Pricing such payoffs in a way consistent to market prices typically involves combining actuarial techniques with methods from...