Author: Zhou, Wenyuan
This report proposes a complete framework to model the operation of a defined benefit pension plan, which contains a Canadian economic scenario generator, a stochastic mortality model, an administrative cost model, and an asset optimization procedure. We suggest the use of economic capital-based measures and expected utility-based measures to quantify the solvency and welfare of the plan. The economic capital-based measure is based on the value-at-risk and expected shortfall measures over three-year and 50-year horizons. Members' expected utility is compared through certainty equivalent consumptions. Using simulated results from the framework, we find a feedback loop in the asset allocation, the valuation rate, and the funded ratio: the funded ratio influences the asset allocation, and these asset weights affect the valuation rate used to discount the actuarial liability which, in turn, impacts the funded ratio.
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Thesis advisor: Sanders, Barbara
Thesis advisor: Bégin, Jean-François
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