Projections of pension fund solvency under alternative valuation regimes |
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Authors: | Andriy Andreev |
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Institution: | Swedish School of Economics and Business Administration , PO Box 479, FIN-00101, Helsinki, Finland |
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Abstract: | This paper examines the impact of three alternative valuation regimes on perceived pension fund solvency. Deterministic valuation assumes smoothed valuation of assets and liabilities. National valuation is based on market valuation of assets and on smoothed valuation of liabilities. International valuation marks assets and liabilities to market values. Using closed-form methods based on the funding ratio return, we exemplify the dramatic effect that the choice of valuation approach has on long-horizon solvency projections. |
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Keywords: | Funding ratio return Long-horizon rate of return Stochastic processes Asset liability management Accounting standards |
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