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IMA Journal of Management Mathematics 2003 14(2):101-109; doi:10.1093/imaman/14.2.101
© 2003 by Institute of Mathematics and its Applications
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Pensions modelling

Con Keating1

1 The Finance Development Centre, Genesis House, 17 Godliman Street, London EC4V 5BD, UK

Valuable insights into the problem of how to fund defined benefit pension schemes can be obtained by analysis using the standard Black–Scholes/Merton option pricing model, considering the pension fund finances jointly with those of the sponsoring company. The nature of the fund assets and liabilities is completely different, and this lies behind current controversies about the appropriate discount rate, valuation, financial accounting and preferential status for pension fund claimants in insolvency.

Keywords: defined benefit pensions; option pricing; Black–Scholes; Merton; fair value accounting; insolvency

Received 4 May 2003. Revised 29 August 2003.


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