<H4>Objectives</H4>The focus of this course is the investment decisions of institutions as well as individual agents that are related to ageing and retirement. Pension funds and insurance companies aim to offer (investment) products that are attractive for participants or potential clients, select investment portfolios and manage investment risks. Individual agents select portfolios and buy insurance given the constraints imposed by the pension scheme.
<H4>Contents</H4>This course covers four finance topics with direct implications for the optimal design of pension schemes. The first topic that is considered is the economic value of the possibility to hedge uncertainty with respect to the remaining life time through the use of annuities. Recent papers show that the value of annuitization is very considerable. Nevertheless few individuals annuitize their wealth voluntarily. Behavioral effects, adverse selection and bequest motives will be proposed as possible explanations. A second topic in this course is risk management of insurers and defined benefit (DB) pension funds. Specifically valuation and hedging of nominal DB plans and life annuities will be discussed, including the implications of the upcoming switch from actuarial valuation to market valuation of liabilities that is induced by the International Financial Reporting Standards. Efficient asset allocation (e.g. over stocks and bonds) and its dependence on age is the third topic in the course. The added value of dynamic strategies that exploit time varying investment opportunity sets will be considered as well. In many countries more and more elements ofindividual choice are introduced in pension schemes, e.g. in Defined Contribution (DC) plans. The behavioral finance literature analyzes the investment decisions of individuals. In the fourth part of the course special emphasis will be given to the evidence on how individuals typically choose portfolios choice in DC plans and how forms of paternalism might protect them.
<H4>Specifics</H4>This course is very interesting for the master in Economics, International Economics &amp; Finance, Investment Analysis, Financial Management, Mathematical Economics and Econometric Methods, Operations Research and Management Sciences and Quantitative Finance and Actuarial Sciences. <BR>