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Risk-based premium evaluation with jump diffusion process for PBGC

Author

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  • Lin Xie
  • Wei Wang
  • Zhixin Yang
  • Nan Zhang

Abstract

In this paper, we mainly focus on the valuation for the risk-based premium of private pension plan with termination provided by the Pension Benefit Guaranty Corporation (PBGC). The dynamics for assets of both the pension fund and the sponsoring company are described by jump diffusion processes. We obtain the pricing formula for the risk-based premium with premature termination and analyze the impact of certain parameters on the premium through numerical simulations. Results indicate that the risk-based premium for PBGC increases with the increase of the risky asset investment proportion, the volatility of risky asset, and pension benefits.

Suggested Citation

  • Lin Xie & Wei Wang & Zhixin Yang & Nan Zhang, 2023. "Risk-based premium evaluation with jump diffusion process for PBGC," Communications in Statistics - Theory and Methods, Taylor & Francis Journals, vol. 52(6), pages 1854-1869, March.
    • Handle: RePEc:taf:lstaxx:v:52:y:2023:i:6:p:1854-1869
    DOI: 10.1080/03610926.2021.1939381
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