390201 :Investment Analysis of Aging and Pensions 1


Voertaal Engels
Werkvorm: 2x2 hours lecture (Geen informatie over collegetijden bekend)
Tentamenvorm: Assignments (0,25); written exam (0,75) (Geen informatie over tentamendata bekend)
Studielast:6 ECTS credits
Inschrijving:via Blackboard
Blackboard informatieniet beschikbaar in Blackboard


prof. dr. F.C.J.M. de Jong

Doel van de cursus (alleen in het Engels beschikbaar)

The focus of this course is on the investment decisions of institutions as well as individual agents that are related to ageing and retirement. Pension funds and insurance companies aim to offer investment and insurance products that are attractive for participants or potential clients, select investment portfolios and manage investment risks. Individual agents select portfolios and buy insurance given the constraints imposed by the pension scheme.

Inhoud van de cursus (alleen in het Engels beschikbaar)

This course provides a solid introduction to finance, covering finance topics with direct implications for the optimal design of pension schemes. Possible topics that will be included are the following.

A first topic is the pricing and hedging of financial derivatives. The aim of this part is to explain the various techniques that are used in the literature to value derivative payoffs and to illustrate the use and valuation of a number of derivative instruments relevant for pension funds and insurance companies. We first discuss complete-market models that allow for perfect replication of the option payoffs (such as binomial trees and the Black-Scholes model). This is followed by a part on incomplete-market models, which are more relevant to establish the fair value of insurance and pension liabilities, since such claims typically contain some unhedgeable component.

A second topic is the economic value of the possibility to hedge uncertainty with respect to the remaining life time through the use of annuities. Recent papers show that the value of annuitization is very considerable. Nevertheless, few individuals annuitize their wealth voluntarily. Behavioral effects, adverse selection, and bequest motives will be proposed as possible explanations.

A third topic is risk management of insurers and Defined Benefit (DB) pension funds. We consider both the case of tradable risks (for example, equity and interest exposure) and that of non-traded risks (macro longevity risk, wage inflation). The solvency requirements implied by national (FTK) and international (Sovency II) legislation will also be discussed.

A fourth topic is efficient asses allocation (for example, over stocks and bonds) and its dependence on age and background risks such as labor income. The standard investment advice that the young should invest a larger fraction of their wealth in stocks will be thoroughly investigated. The added value of dynamic strategies that exploit time varying investment opportunity sets will be considered as well. Attention will also be given to the implications of this literature for the optimal design of pension contracts.

Bijzonderheden (alleen in het Engels beschikbaar)

Relevance: MSc Economics and Finance of Aging.

Verplichte literatuur

  1. MSc Economics and Finance of Aging

Gewenste voorkennis

Bachelor in Economics, IEF, Business Admin. or Econometrics & OR]