CHAPMAN & HALL/CRC FINANCE SERIES

Pension Fund
Risk
Management
Financial and Actuarial Modeling

Edited by

Marco Micocci
Greg N. Gregoriou
Giovanni Batista Masala

2010 by Taylor and Francis Group, LLC

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Library of Congress Cataloging-in-Publication Data
Pension fund risk management : financial and actuarial modeling / editors, Marco
Micocci, Greg N. Gregoriou, and Giovanni Batista Masala.
p. cm. -- (Chapman & hall/crc finance series ; 5)
Includes bibliographical references and index.
ISBN-13: 978-1-4398-1752-0 (alk. paper)
ISBN-10: 1-4398-1752-9 (alk. paper)
1. Pension trusts. 2. Risk management. I. Micocci, Marco. II. Gregoriou, Greg N.,
1956- III. Masala, Giovanni Batista. IV. Title. V. Series.
HD7105.4.P464 2010
658.3253--dc22
Visit the Taylor & Francis Web site at
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and the CRC Press Web site at
http://www.crcpress.com

2010 by Taylor and Francis Group, LLC

2009030223

Contents
Preface, ix
Editors, xvii
Contributor Bios, xix
Contributors, xxxiii
PART I

Financial Risk Management

CHAPTER 1 Quantifying Investment Risk in Pension Funds 003

SHANE FRANCIS WHELAN

CHAPTER 2 Investment Decision in Defined Contribution

Pension Schemes Incorporating Incentive
Mechanism

039

BILL SHIH-CHIEH CHANG AND EVAN YA-WEN HWANG

CHAPTER 3 Performance and Risk Measurement

for Pension Funds

071

AUKE PLANTINGA

CHAPTER 4 Pension Funds under Inflation Risk

085

AIHUA ZHANG

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vi Contents

CHAPTER 5 MeanVariance Management in Stochastic

Aggregated Pension Funds with Nonconstant
Interest Rate

103

RICARDO JOSA FOMBELLIDA

CHAPTER 6 Dynamic Asset and Liability Management

129

RICARDO MATOS CHAIM

CHAPTER 7 Pension Fund Asset Allocation under

Uncertainty

157

WILMA DE GROOT AND LAURENS SWINKELS

CHAPTER 8 Different Stakeholders Risks

in DB Pension Funds

167

THEO KOCKEN AND ANNE DE KREUK

CHAPTER 9 Financial Risk in Pension Funds: Application

of Value at Risk Methodology

185

MARCIN FEDOR

CHAPTER 10 Pension Scheme Asset Allocation with

Taxation Arbitrage, Risk Sharing, and Default
Insurance
211
CHARLES SUTCLIFFE

PART II

Technical Risk Management

CHAPTER 11 Longevity Risk and Private Pensions

237

PABLO ANTOLIN

CHAPTER 12 Actuarial Funding of Dismissal and

Resignation Risks
WERNER HRLIMANN

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267

Contents vii

CHAPTER 13 Retirement Decision: Current Influences

on the Timing of Retirement among Older
Workers

287

GAOBO PANG, MARK J. WARSHAWSKY, AND BEN WEITZER

CHAPTER 14 Insuring Defined Benefit Plans in Germany

315

FERDINAND MAGER AND CHRISTIAN SCHMIEDER

CHAPTER 15 The Securitization of Longevity Risk

in Pension Schemes: The Case of Italy

331

SUSANNA LEVANTESI, MASSIMILIANO MENZIETTI, AND TIZIANA TORRI

PART III

Regulation and Solvency Topics

CHAPTER 16 Corporate Risk Management and Pension

Asset Allocation

365

YONG LI

CHAPTER 17 Competition among Pressure Groups over

the Determination of U.K. Pension Fund
Accounting Rules

389

PAUL JOHN MARCEL KLUMPES AND STUART MANSON

CHAPTER 18 Improving the Equity, Transparency, and

Solvency of Pay-as-You-Go Pension Systems:
NDCs, the AB, and ABMs
419
CARLOS VIDAL-MELI, MARA DEL CARMEN BOADO-PENAS,
AND OLE SETTERGREN

CHAPTER 19 Risk-Based Supervision of Pension Funds

in the Netherlands
DIRK BROEDERS AND MARC PRPPER

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viii Contents

CHAPTER 20 Policy Considerations for Hedging Risks in

Mandatory Defined Contribution Pensions
through Better Default Options

509

GREGORIO IMPAVIDO

CHAPTER 21 Pension Risk and Household Saving over

the Life Cycle

549

DAVID A. LOVE AND PAUL A. SMITH

PART IV

International Experience in Pension Fund Risk

Management

CHAPTER 22 Public and Private DC Pension Schemes,

Termination Indemnities, and Optimal
Funding of Pension System in Italy

581

MARCO MICOCCI, GIOVANNI B. MASALA, AND GIUSEPPINA CANNAS

CHAPTER 23 Efficiency Analysis in the Spanish Pension

Funds Industry: A Frontier Approach

597

CARMEN-PILAR MART-BALLESTER AND DIEGO PRIOR-JIMNEZ

CHAPTER 24 Pension Funds under Investment Constraints:

An Assessment of the Opportunity Cost
to the Greek Social Security System
637
NIKOLAOS T. MILONAS, GEORGE A. PAPACHRISTOU,
AND THEODORE A. ROUPAS

CHAPTER 25 Pension Fund Deficits and Stock Market

Efficiency: Evidence from the
United Kingdom

659

WEIXI LIU AND IAN TONKS

CHAPTER 26 Return-Based Style Analysis Applied

to Spanish Balanced Pension Plans
LAURA ANDREU, CRISTINA ORTIZ, JOS LUIS SARTO, AND LUIS VICENTE

INDEX, 707

2010 by Taylor and Francis Group, LLC

689