- When do derivatives add value in asset allocation problems for pension funds?
- Rotman International Journal of Pension Management
- Volume | Issue number
- 6 | 1
- Pages (from-to)
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
Recent surveys indicate that many pension-fund participants aim for higher retirement income security. We investigate the added value of including derivatives in the portfolio of pension funds to achieve this goal. To do so, we define preferences that incorporate specific features of pension funds, but we also report performance among several key criteria used in practice. Furthermore, we model explicitly that the equity market exhibits both jump risk and volatility risk. Our results show that even relatively small investments in derivatives can achieve improvements in certainty equivalent rates of return and other important performance measures. This confirms the intuition that the use of derivatives allows pension investors to make explicit risk and return trade- offs and diversify between diffusion risk, jump risk, and volatility risk.
- go to publisher's site
If you believe that digital publication of certain material infringes any of your rights or (privacy) interests, please let the Library know, stating your reasons. In case of a legitimate complaint, the Library will make the material inaccessible and/or remove it from the website. Please Ask the Library, or send a letter to: Library of the University of Amsterdam, Secretariat, Singel 425, 1012 WP Amsterdam, The Netherlands. You will be contacted as soon as possible.