Wenyuan Zhou

Title: A Complete Framework for Modelling Defined Benefit Pension Plans
Date: December 1st, 2022
Time: 2:00PM
Location: Library Thesis Defence Room 2020

Abstract

This report proposes a complete framework to model the operation of a defined benefit pension plan, which contains a Canadian economic scenario generator, a stochastic mortality model, an administrative cost model, and an asset optimization procedure. We suggest the use of economic capital-based measures and expected utility-based measures to quantify the solvency and welfare of the plan. The economic capital-based measure is based on the value-at-risk and expected shortfall measures over three-year and 50-year horizons. Members’ expected utility is compared through certainty equivalent consumptions. Using simulated results from the framework, we find a feedback loop in the asset allocation, valuation rate, and the funded ratio: the asset allocation is influenced by the funded ratio, the valuation rate depends on the asset allocation, and the funded ratio is, in turn, impacted by the valuation rate.