Linear Intergenerational Risk Sharing for Pensions

Fall 2022 Actuarial Science and Financial Mathematics Seminar

Date and Time: Friday, November 11, 2022, 2:00 PM (CST)

Speaker: Michail Anthropelos (University of Piraeus)

Abstract: We introduce and analyze a novel intergenerational risk-sharing scheme for an open pension fund with guaranteed payments. We consider a collective approach in which the periodic contributions are determined via risk-sharing and any potential capital deficit at retirement of a generation, due to bad investment performance, is covered by capital injections from the younger generations. As for the sharing rule, we propose linear sharing, with weights based on the discounted liabilities to each generation. Through a series of simulations, we show that our proposed risk-sharing scheme consistently outperforms in terms of risk-adjusted measures the comparable individual approach. An extensive sensitivity analysis indicates that this outperformance is robust with regards to model’s parameters and when an alternative sharing rule (based on Shapley value) is implemented. Our results suggest that a collective approach to pension plans with linear risk-sharing is mutually beneficial, at least under non-extreme circumstances. This is a joint work with An Chen, Steven Vanduffel and Morten Wilke.

About: Michail Anthropelos is Assistant (tenured) Professor of Mathematical Finance at the Department of Banking and Financial Management of the University of Piraeus (Greece) and the director of the departmental doctoral program. His research interests lie on problems related to optimal investment of pension funds and contingent claim pricing. He has received several awards for his research work which has been published in all leading academic journals in the field of Mathematical Finance.  In the past, he had served as visiting Scholar/Professor at London School of Economics and Boston University. He also serves as a chairman/member of the investment committee for six occupational pension funds in Greece, and has provided several executive training courses on the topics of asset liability management and liability-driven investment strategies. He holds a PhD from the University of Texas at Austin, an M.A. from Columbia University and a BA from the University of Piraeus (ranked first in the class).