Wharton Pension Research Council Working Papers
 

Title

Managing Capital Market Risk for Retirement

Document Type

Working Paper

Date of this Version

10-1-2013

Abstract

We offer an overview of solutions available to pension plans to manage capital market risk in order to meet their obligations. We outline the main drivers behind the evolution of asset-liability management (ALM) for pension plans and the emergence of liability-driven investment (LDI) in the last decade. We look at some of the most popular pension de-risking tools and at recent innovations prompted by the Global Financial Crisis. We offer examples based on the rise of cross-asset correlation, the use of hybrid products to mitigate tail risk, and the increasing relevance of counterparty risk mitigation tools such as collateralization. We conclude by outlining some of the main challenges ahead, including developments in pension regulation, centralized clearing of over-the-counter (OTC) instruments, and risk taking incentives in delegated asset management for long term retirement obligations.

Comments

The published version of this Working Paper may be found in the 2014 publication: Recreating Sustainable Retirement: Resilience, Solvency, and Tail Risk.

Keywords

pension liabilities, liability-driven investment, cross-asset correlation, collateralization, pension buyouts, over-the-counter OTC instruments

Working Paper Number

WP2013-23

Copyright/Permission Statement

All opinions, errors, findings, interpretations, and conclusions of this paper represent the views of the authors and not those of the Wharton School or the Pension Research Council. © 2013 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.

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Date Posted: 26 June 2019