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Recreating Sustainable RetirementResilience, Solvency, and Tail Risk$
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Olivia S. Mitchell, Raimond Maurer, and P.Brett Hammond

Print publication date: 2014

Print ISBN-13: 9780198719243

Published to Oxford Scholarship Online: December 2014

DOI: 10.1093/acprof:oso/9780198719243.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2020. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 03 December 2020

Managing Capital Market Risk for Retirement

Managing Capital Market Risk for Retirement

(p.9) Chapter 2 Managing Capital Market Risk for Retirement
Recreating Sustainable Retirement

Enrico Biffis

Robert Kosowski

Oxford University Press

The chapter offers an overview of solutions available to pension plans to manage capital market risk in order to meet their obligations. It outlines the main drivers behind the evolution of asset-liability management (ALM) for pension plans and the emergence of liability-driven investment (LDI) in the past decade, and looks at some of the most popular pension de-risking tools and at recent innovations prompted by the Global Financial Crisis. Examples are offered based on the rise of cross-asset correlation, the use of hybrid products to mitigate tail risk, and the increasing relevance of counterparty risk-mitigation tools such as collateralization. The chapter concludes by outlining some of the main challenges ahead, including developments in pension regulation, centralized clearing of over-the-counter (OTC) instruments, and risk-taking incentives in delegated asset management for long-term retirement obligations.

Keywords:   Liability-driven investment, collateralization, pension buyouts, over-the-counter instruments, asset-liability management, tail-risk hedges

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