7dedic - ACTSC 445 Asset-Liability Management Fall 2008...

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ACTSC 445: Asset-Liability Management – Fall 2008 Department of Statistics and Actuarial Science, University of Waterloo Unit 7 – Dedicated Bond Portfolio: A Case Study References (recommended readings): Chap. 48 of Fabozzi. In this unit, we use an example based on a pension plan to illustrate the use of a dedicated bond portfolio for cash ±ow matching. The liabilities in this example are taken to be the expected bene²t payouts to a closed block of current retirees, and a 35-year schedule is used. A few notes on liabilities: Liability obligations must be projected accurately. Sometimes, terminated vested participants (former employees who are vested in the pension plan and are entitled to bene²t payouts commencing sometime in the future) are also included, and also active partcipants over the age of 50. When this is the case, various mortality, termination, and bene²t assumptions must be reviewed periodically. The following table is an excerpt of the schedule of expected bene²t payouts for this example (Exhibit 48-1 in Fabozzi). Retired lives liabilities Retired lives liabilities plus terminated vested Year Dollar Payout Dollar Payout 1992 1,250,000 2,000,000 1993 15,000,000 24,000,000 1994 14,916,015 24,519,000 1995 13,445,985 25,021,000
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This note was uploaded on 09/10/2010 for the course ACTSC 445 taught by Professor Christianelemieux during the Spring '09 term at Waterloo.

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7dedic - ACTSC 445 Asset-Liability Management Fall 2008...

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