publication . Preprint . Report . Article . 1989

Pension Funds and Financial Innovation

Zvi Bodie;
Open Access
  • Published: 01 Sep 1989
Pension funds have played a critical role in the evolution of the markets for debt and equity securities and their derivatives in the U.S. over the last 15 years. The new securities and markets can largely be explained as responses to the investment demands of pension funds in an environment of increased interest rate volatility and tighter regulation. Defined benefit pension plans offer annuities that have a guaranteed floor specified by the benefit formula. In order to minimize the cost to the sponsor of providing this guarantee, there is a strong incentive to invest an amount equal to the present value of the accumulated benefit obligation in fixed- income se...
free text keywords: Global assets under management, Finance, business.industry, business, Capital market, Stable value fund, Bond market, Economics, Financial innovation, Zero-coupon bond, Debt, media_common.quotation_subject, media_common, Pension, Financial system
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5see Clark, Allen, and Sumner [1983) for a discussion of these ad hoc increases.

5For example, see Black [19893, Arnott and Bernstein [1988], and Atbechtsheer [1987]. flfl, U.S. Government Printing Office, Washington D.C., 1989.

VanDerhei, Jack, and Scott Harrington, "Pension Asset Reversions," Chapter 10 in Turner and Belier, op. cit.

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