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The Pension ChallengeRisk Transfers and Retirement Income Security$
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Olivia S. Mitchell and Kent Smetters

Print publication date: 2003

Print ISBN-13: 9780199266913

Published to Oxford Scholarship Online: August 2004

DOI: 10.1093/0199266913.001.0001

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Hedging Segregated Fund Guarantees

Hedging Segregated Fund Guarantees

(p.214) Chapter 10 Hedging Segregated Fund Guarantees
The Pension Challenge

Olivia S. Mitchell (Contributor Webpage)

Kent Smetters (Contributor Webpage)

Oxford University Press

Segregated funds have become popular investments for self-directed pension plans in Canada. This chapter examines the hedging strategies that allow underwriting companies to lower their risk exposure to these contracts. The simple delta-neutral hedging strategy can reduce downside risk if it is possible to set up a hedging position using the underlying mutual fund, or a perfectly correlated asset. However, the underlying mutual fund cannot be used when constructing the hedging portfolio.

Keywords:   segregated funds, hedging, risk management, maturity guarantees, Canada, investment

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