The Pricing Model of Pension Benefit Guaranty Corporation Insurance with Regime-Switching Processes

Ting Fu Chen, Shih Kuei Lin, An Sing Chang, Wei Hao Wang

研究成果: 雜誌貢獻期刊論文同行評審

摘要

This paper aims to evaluate Pension Benefit Guaranty Corporation (PBGC) insurance values through regime-switching models. We separate periods of the economy with faster growth from those with slower growth to observe long-term trends in the economy. We derive a fair PBGC insurance pricing formula under distress termination and intervention termination using regimeswitching processes. We set parameters by estimating the S&P 500 index and one-year treasury bills via expectation maximization particle swarm optimization (EM-PSO)-Gradient, which is an extension of the EM-Gradient method. Then, we conduct sensitivity analysis to investigate the impact of model parameters on insurance values. According to the maximum likelihood estimation results, the Akaike information criterion (AIC) and Bayesian information criterion (BIC) estimators show that the regime-switching process has better goodness of fit than the geometric Brownian motion. Scenario analysis also supports the adequacy of our pricing formula.

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文章編號258
期刊Journal of Risk and Financial Management
15
發行號6
DOIs
出版狀態已出版 - 6月 2022

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