Abstract

The use of time series models in general, and conditional processes, in particular for modelling returns on investment, have been considered recently for pension plan funding. In this project, ARMA and GARCH models are applied to the rate of return of a hybrid pension plan. The first and second moments of the fund, contributions, and benefits are derived under both models. The aggregate risk and the optimal spread period of amortization are studied under different risk measures; Value at Risk, Coefficient of Variation, and Variance. All evaluations are done over finite as well as infinite time horizons. Finally, numerical illustrations under different investment strategies as well as different valuation interest Rates are proposed under GARCH model.