University of Twente Student Theses


Garantiecontracten, wel of niet doen? Waarderen en vergelijken van garantiecontracten in het kader van pensioen

Bassett, Konrad G. (2013) Garantiecontracten, wel of niet doen? Waarderen en vergelijken van garantiecontracten in het kader van pensioen.

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Abstract:This research focuses on a guaranteed pension contract that is established between an employer (the buyer) and the pension insurance company. A guarantee contract is a type of pension contract that entails the participants to a minimum return on their pension investment during the building up period. This results in a guaranteed pension for those who participated in the pension scheme. The contract is based on a Defined Benefit pension scheme with average pay. Within a guarantee pension contract the premium is based on the, in advance determined, pay outs after pension date. The contract term is five years, and after five years the employer has the choice to leave the buildup pension behind at the pension insurance company, or take the value of the contract at that moment to another pension insurance company. When several embedded options are included in a guarantee contract, no analytical methods suffice to determine a market value. Therefore a numerical method was used to determine the market value, Monte Carlo simulation. Monte Carlo simulation is suitable for modeling the guarantee contract. A disadvantage of Monte Carlo simulation is the lead time of the model and the outcome field of the results. In this study, a set of scenarios was provided by Ortec Finance, a “real world” scenario set. Although the scenarios contained a positive trend, it gives an estimation of real future outcomes. This study also showed that discount factors and default option rates with an analytical pricing formula can be used as a check on the simulation results. In addition, the combination of analytical formulas and Monte Carlo simulation is useful in the calibration of various parameters on the market values. The method of the replicating portfolio can be used to determine the value of the interest rate guarantee. This gives a clear picture of what is insurer can ask for the guarantee on interest, therefore what the insurer has to withhold to cover the costs of such a guarantee elsewhere. Insurers continue the way they hedge the market risks that come across a guarantee contract. 1. The insurers better understand the value of a guarantee. 2. The provision must be determined based on fair value (market value). 3. Hedging is becoming a regular thing, where the costs are transparently passed on to the purchaser of a guarantee contract. The aim of this study was to see how the price of a guarantee contract relates to what one gets in return. Influences on the price of a guarantee contract showed, in the current economic climate, while the interest rate is low and equity returns are highly volatile, that the inserted value in most cases does not relate to what the buyer gets in return. The value at the end of the contract is, under different economic conditions, always less than the total premium that the buyer invested. This research study showed that an insurer does ask for extra premium, in order to finance the hedging of the interest rate risks. The construction of financing the hedge through the costs of a guaranteed pension contract is not always straightforward and transparent. Therefore making it difficult to see whether or not the contract is a good investment.
Item Type:Essay (Master)
HayGroup, Zeist, Nederland
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Information Technology MSc (60025)
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