Pricing pension plans under jumpdiffusion models for the salary ?
In this paper we consider the valuation of a defined benefit pension plan in the presence of jumps in the underlying salary and including the possibility of early retirement. We will consider that the salary follows a jumpdiffusion model, thus giving rise to a partial integro-differential equation (PIDE). After posing the model, we propose the appropriate numerical methods to solve the PIDE problem. These methods mainly consists of LagrangeGalerkin discretizations combined with augmented Lagrangian active set techniques and with the explicit treatment of the integral term. Finally, we compare the numerical results with those ones obtained with Monte Carlo techniques.
pension plans jumpdiffusion models numerical methods option pricing complementarity problem augmented lagrangian active set formulation