Optimal Portfolio in Corporate Pension Plans: Risk Shifting and Risk Management

33 Pages Posted: 14 Feb 2018

See all articles by Katarzyna Romaniuk

Katarzyna Romaniuk

Université de Paris 1 Panthéon-Sorbonne; Xi'an Jiaotong-Liverpool University (XJTLU)

Date Written: January 31, 2018

Abstract

We derive the optimal corporate pension portfolio policy in a consolidated setting in the presence of PBGC insurance. The paper's result formalizes the forces of risk shifting and risk management that shape the form of the corporate pension portfolio. As in Rauh (2009), the risk-shifting and risk-management incentives increase when a sponsoring company runs into financial trouble. Unlike Rauh (2009), we show that risk management must not constitute a force countering risk shifting. On the contrary, for a company registering serious financial problems, the strategies driven by risk-shifting and risk-management motives are both extreme.

Keywords: optimal corporate pension portfolio policy; defined benefit pension plans; PBGC insurance; financial distress; risk shifting; risk management

JEL Classification: C61; D92; G11; G22; G23; G31; G32

Suggested Citation

Romaniuk, Katarzyna, Optimal Portfolio in Corporate Pension Plans: Risk Shifting and Risk Management (January 31, 2018). Available at SSRN: https://ssrn.com/abstract=3116544 or http://dx.doi.org/10.2139/ssrn.3116544

Katarzyna Romaniuk (Contact Author)

Université de Paris 1 Panthéon-Sorbonne ( email )

17, rue de la Sorbonne
Paris, 75005
France

Xi'an Jiaotong-Liverpool University (XJTLU) ( email )

111 Renai Road, SIP
Suzhou, JiangSu province 215123
China

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