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Pricing Interest Rate Guarantee Embedded in Defined Contribution Pension Plans under the LIBOR Market Model

Journal of Financial Studies

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Title Pricing Interest Rate Guarantee Embedded in Defined Contribution Pension Plans under the LIBOR Market Model
 
Creator Tsung-Yu Hsieh
Son-Nan Chen
 
Subject —
 
Description We derive the pricing formulas for the guarantees embedded in defined contribution (DC) pension plans with the guaranteed minimum rate of return set relative to a LIBOR interest rate. The guaranteed rate associated with a stochastic LIBOR interest rate has not yet been studied in the relevant literature, particularly in the presence of stochastic interest rates. An extended LIBOR market model (LMM) is employed to price the interest rate guarantees embedded in DC pension plans under maturity and multi-period guarantees. The pricing formulas derived under the extended LMM are more tractable and feasible for practice than those derived under the instantaneous short rate models or the HJM model. Monte Carlo simulation is also provided to evaluate the accuracy of the theoretical results.Key words: Interest rate guarantee, LIBOR market model, Defined contribution pension plans
 
Publisher Journal of Financial Studies
財務金èžå­¸åˆŠ
 
Contributor —
 
Date 2011-03-04
 
Type —
 
Format application/pdf
 
Identifier http://www.jfs.org.tw/index.php/jfs/article/view/2011036
 
Source Journal of Financial Studies; Vol 18, No 2 (2010); 27
財務金èžå­¸åˆŠ; Vol 18, No 2 (2010); 27
 
Language en