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Liability-driven investment strategy - sensitivity analysis of a UK pension scheme
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Resumo(s)
Pension schemes and hedging strategies are constantly being subject to research throughout the
years. However, to the best of our knowledge, there is no literature that studies how changing
actuarial assumptions affects the hedging position of the schemes. Therefore, the objective of this
study is to analyze the hedging sensitivity to demographic and economic assumptions used on the
Actuarial Valuation and, consequently, contribute to an unexplored topic.
This research will be directly focused in a dummy UK pension scheme for the liabilities calculations
while the asset portfolio was constructed using a duration and convexity matching strategy, where
the scheme’s asset allocation is built with the main goal being that its sensitivity to interest and
inflation rates changes is matched with the corresponding scheme’s liabilities sensitivity.
To calculate the liabilities sensitivity of a pension scheme, it is derived a Liability Benchmark
Portfolio. However, not only interest and inflation rates shifts represent a risk for the pension
scheme. All the assumptions used to derive the Liability Benchmark Portfolio will also be a risk that
will not be hedged in the immunization strategy. The assumptions that were analyzed throughout
this research are the following: mortality table, rate of improvement, spouse’s age, discount basis,
inflation rate and the wedge between CPI and RPI.
This dissertation therefore tests how changing assumptions impacts the hedging strategy of the
scheme and the respective consequences in the final designed asset portfolio.
Descrição
Dissertation presented as the partial requirement for obtaining a Master's degree in Statistics and Information Management, specialization in Risk Analysis and Management
Palavras-chave
Liability-Driven Investment Liability Benchmark Portfolio United Kingdom pension schemes Defined-benefit pension scheme