This study addresses the issue of the management of a partially unfunded pension fund in a stochastic framework. In particular it focuses on the sustainability of a pay-as-you-go pension fund with a funded component. The model proposed is developed in a continuous time and the two stochastic variables are the return on the assets and the intensity of new entrants. The former are driven by a Vasiceck process and the latter is modelled by a mean reverting process. The goal is to monitor the solvency of the fund, namely its capability to pay future obligations. To check the financial stability of the fund, risk indicators are proposed. The methodology is applied to the pension fund of Italian Professional Orders, pension funds that follow a not pure pay-as-you-go pension scheme, but have a funded component. Finally, some examples illustrate how the management of the fund can activate the correctives to rebalance the fund solvency.

Solvency indicators for partially unfunded pension funds / Melis, Roberta; Trudda, Alessandro. - In: INVESTMENT MANAGEMENT & FINANCIAL INNOVATIONS. - ISSN 1810-4967. - 9:4(2012), pp. 71-77.

Solvency indicators for partially unfunded pension funds

MELIS, Roberta;TRUDDA, Alessandro
2012-01-01

Abstract

This study addresses the issue of the management of a partially unfunded pension fund in a stochastic framework. In particular it focuses on the sustainability of a pay-as-you-go pension fund with a funded component. The model proposed is developed in a continuous time and the two stochastic variables are the return on the assets and the intensity of new entrants. The former are driven by a Vasiceck process and the latter is modelled by a mean reverting process. The goal is to monitor the solvency of the fund, namely its capability to pay future obligations. To check the financial stability of the fund, risk indicators are proposed. The methodology is applied to the pension fund of Italian Professional Orders, pension funds that follow a not pure pay-as-you-go pension scheme, but have a funded component. Finally, some examples illustrate how the management of the fund can activate the correctives to rebalance the fund solvency.
2012
Solvency indicators for partially unfunded pension funds / Melis, Roberta; Trudda, Alessandro. - In: INVESTMENT MANAGEMENT & FINANCIAL INNOVATIONS. - ISSN 1810-4967. - 9:4(2012), pp. 71-77.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11388/85280
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