Pension fund risk management [22]

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Bullet points include: In economic scenario j, and in case where sponsor defaults just after t: Member receives full amount of benefits previously ‘promised’, say CF(t), up to time t but only a proportion of benefits previously ‘promised’, say k CF(t) after t Proportion k corresponds to (windup) A/L ratio at time t in that scenario Which in a market consistent world (as per usual credit pricing theory) involves (where vt = risk-free discount factor and PV = present value):

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