Asset-Liability Management in Pension Financing.

Summary Despite significant changes in pension systems, including the shift from pay-as-you-go to funded systems, several problems remain. The demographic structure is one of the main factors of systemic risk, threatening the equilibrium of pension funds and favoring instability and poor economic performance. In this thesis, we mobilize empirical and theoretical analysis to provide an investment strategy response to this problem. We first synthesize the existing literature and highlight the importance of intergenerational risk sharing and the differences between individual and collective investments. Using a nested generation model, we study the effects of demographic structure on asset prices. We identify a positive correlation between the inverse of the dependency ratio and asset prices (asset meltdown). Then, using simulated pension contracts, we study the effects of increasing life expectancy and decreasing fertility rates on intergenerational risk sharing. Although the group defined contribution (DC) pension plan better amortizes demographic risks, similar performance can be achieved through individual funding. Moreover, individual funding outperforms the group plan when regulations are highly restrictive. Our results suggest the need for a continuous reform process based on investment strategies. Thus, the effectiveness of fund selection methods such as the false positive rate method seems to be confirmed.