Dynamic Investment Strategies for Corporate Pension Funds in the Presence of Sponsor Risk
The present publication is part of the BNP Paribas Investment Partners research chair at EDHEC-Risk Institute on “ALM and Institutional Investment Management”.
Author(s):
Professor of finance at EDHEC Business School and scientific director of EDHEC-Risk Institute.
Deputy Scientic Director at EDHEC-Risk Institute
Research Assistant at EDHEC-Risk Institute
The purpose of the present research publication is to go beyond simple forms of dynamic strategies, and to show that more sophisticated dynamic allocation strategies could usefully be implemented by pension funds. For instance, the paper shows that imposing a cap on the funding ratio, in addition to a floor, has a positive impact on both pensioners and bondholders, while only having a minor negative effect on equity value. The paper also introduces novel forms of dynamic strategies that recognise that pension risk is not only driven by the funding ratio of the pension fund, but also by the financial strength or weakness of the sponsor company. These strategies aim to control sponsor risk by avoiding states of the world where the pension fund is underfunded and the sponsor is unable to make up for the gap.
| Type: | EDHEC Publication |
|---|---|
| Date: | le 20/02/2012 |
| Research Cluster : | Finance |
See Also
About EDHEC
Operating from campuses in Lille, Nice, Paris, London and Singapore, EDHEC is one of the top 15 European business schools. Fully international and directly connected to the business world, EDHEC is a school for business, rather than a business school, where excellence in teaching and research focuses on innovation to stimulate entrepreneurship and creativity. EDHEC functions as a genuine laboratory of ideas and produces innovative solutions valued by businesses. The School’s teaching philosophy, inspired by its award-winning research activities, focuses on “learning by doing”.
