Session: 45

Social Security

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Summary

The aim of this study is to present a comparison of the results of the immunisation of a Workers' Compensation Pension Fund in Portugal obtained by using a deterministic model with those obtained by using a stochastic model developed by Longstaff and Schwartz (1993,1992).

We observe that the use of a mandatory interest rate of 6% and the French Mortality Table TV 73-77 to calculate the liabilities, as obliged by law, undervalues the real amount of the pension flows. This is because the upward and downward movements of the interest rate are parallel and affect simultaneously all the terms of the structure of the interest rate.

Therefore, we recalculated these obligations using the Longstaff and Schwartz model, in which the variations of the interest rate are stochastic, and we conclude that the amount of the liabilities is higher than that resulting from the deterministic model, due to the volatility of the short-term interest rate.