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Capital structure choices, pension fund allocation decisions and the rational pricing of liability streams

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  • Martellini, Lionel
  • Milhau, Vincent

Abstract

This paper introduces an integrated asset-liability management model that allows for the joint quantitative analysis of capital structure choices, pension fund allocation decisions and rational pricing of liabilities. We confirm that capital structure decisions have a substantial impact on the value of pension claims, and we provide a quantitative assessment of the mispricing induced by the use of an arbitrary regulatory discount rate. We also present a quantitative assessment of the asset substitution effect implied by a change in the pension fund allocation to risky assets taking place after the corporate and pension obligation claims have been issued.

Suggested Citation

  • Martellini, Lionel & Milhau, Vincent, 2022. "Capital structure choices, pension fund allocation decisions and the rational pricing of liability streams," Journal of Pension Economics and Finance, Cambridge University Press, vol. 21(3), pages 425-445, July.
    • Handle: RePEc:cup:jpenef:v:21:y:2022:i:3:p:425-445_7
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