We provide a framework in which we link the valuation and asset allocation policies of defined benefits plans with the lifetime marginal productivity schedule of the worker and the pension plan formula. In turn, we examine the retirement policies that are implied by the primitives of the model and the value of pension obligations. Our model provides an explicit valuation formula for a stylized defined benefits plan. The optimal asset allocation policies consist of the replicating portfolio of the pension liabilities and the growth optimum portfolio independent of the pension liabilities. We show that the worker will retire when the ratio of pension benefits to current wages reaches a critical value which depends on the parameters of the pension plan and the discount rate. Using numerical techniques we analyze the feedback effect of retirement policies on the valuation of plans and on the asset allocation decisions.

We provide a framework in which we link the valuation and asset allocation policies of defined benefits plans with the lifetime marginal productivity schedule of the worker and the pension plan formula. In turn, we examine the retirement policies that are implied by the primitives of the model and the value of pension obligations. Our model provides an explicit valuation formula for a stylized defined benefits plan. The optimal asset allocation policies consist of the replicating portfolio independent of the pension liabilities. We show that the worker with retire when the ratio of pension benefits to current wages reaches a critical value which depends on the parameters of the pension plan and the discount rate. Using numerical techniques we analyze the feedback effect of retirement policies on the valuation of plans and on the asset allocation decisions.

The 3e of this well-respected textbook continues the tradition of providing clear and concise explanations for fixed income securities, pricing, and markets. The book matches well with fixed income securities courses. The book's organization emphasizes institutions in the first part, analytics in the second, selected segments of fixed income markets in the third, and fixed income derivatives in the fourth. This enables instructors to customize the material to suit their course structure and the mathematical ability of their students. In this title, new material on Credit Default Swaps, Collateralized Debt Obligations, and an integrated discussion of the Credit Crisis have been added. Online Resources for instructors on password protected website provides worked out examples for each chapter. A detailed description of all key financial terms is provided in a glossary at the back of the book.