Performance of Dynamic Hedging Strategies for Cash Balance Pension Plans

Cash Balance Pension Plan;Financial Valuation;Dynamic Hedging Strategy;Actuarial Science

ZHU, XIAO BAI

University of Waterloo

关键词: Cash Balance Pension Plan;    Financial Valuation;    Dynamic Hedging Strategy;    Actuarial Science;   

Others  :  https://uwspace.uwaterloo.ca/bitstream/10012/9731/1/ZHU_XIAOBAI.pdf

瑞士|英语

来源: UWSPACE Waterloo Institutional Repository

【 摘 要 】

Cash balance (CB) pension plans make up 25% of all defined benefit plans in the US.The benefits are accumulated at guaranteed crediting rates, the most popular choice is theyield on the 30-year Treasury bond. In this paper, we explore the pricing and hedging ofthe CB liability usingfinancial theory and models. Due to the fact that crediting rates areoften unmarketable, and motivated by the theory of replicating portfolios, we present theperformance of a delta hedging strategy.Our results suggest that the performance of the delta hedging strategy is related tothe number of factors in the model rather than the number of hedging instruments. Inparticular, one-factor Hull White and two-factor Hull White model are not capable toconstruct an effective delta hedging portfolio.