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.
Copyright is held by the author(s).
This thesis may be printed or downloaded for non-commercial research and scholarly purposes.
Supervisor or Senior Supervisor
Member of collection