International Journal of Real Options and Strategy
Online ISSN : 2186-4667
ISSN-L : 2186-4667
Invited Paper
A Simple Model of the Japanese Public Pension System and the Risk Management by an Option Hedging Strategy
Tadashi UrataniMasanori Ozawa
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2013 Volume 1 Pages 29-37


We consider the risk management problem in the Japanese public pension system using government data and programs. Specially, we formulate a simple model of pension sustainability for the long term and then model the budgetary balance as a stochastic process using the growth rate of wages and the rate of fund return. Our objects are to assess the effects of economic scenarios when forecasting reserve values and to evaluate the risk of a failure to pay benefits in the target year. We measure risk in our scenarios by backward calculating the option pricing for a binomial tree. We assess the sustainability of pensions in three economic scenarios with deflation, middle inflation, and high-inflation economies.

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© 2013 The Japan Association of Real Options and Strategy
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