After completing this course, the student will understand the implications of econometric and actuarial modeling for the investment strategies and optimal pension provision of funded pensions. The student will understand key concepts such as life cycle investing, variable annuities and interest rate hedging. Moreover, students will become familiar with some of the many ongoing debates in the national and international pension sector, including the Dutch pension agreement (June 2019) and the welfare costs of inadequate pension contracts.
This course is sponsored by Netspar, see www.netspar.nl
Pension systems vary widely between countries. In a number of countries, including the Netherlands, pension schemes are dominant which are characterized by mandatory participation, very limited individual choice with respect to asset allocation or pay-out structure and uniform contribution and accumulation for all participants. The other extreme is individual Defined Contribution schemes such as the 401(k) scheme in the US, which have also been extensively analyzed in the literature. In these schemes participants can choose whether to save for retirement and how to invest, and pay-outs are usually not insured against longevity risk.
Advanced econometric models are used in motivating saving, investment and dissaving in all these pension contracts.
The course consists of the following topics:
- Modeling assumptions that motivate life cycle investment;
- Factor investing and Jensen’s alpha
- Valuation and actuarial fair choice
- Annuity design and insurance against longevity risk
- Stylized discussion of pension systems
- The implications of econometric modeling for the Dutch policy debate on pension cuts and the pension agreement (June 2019)
- Welfare and value impacts of intergenerational solidarity;
- Costs and performance of pension systems.
Type of instructions
3 contact hours per week
Type of exams
Written exam (80%), assignments (20%)