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The Pension ChallengeRisk Transfers and Retirement Income Security$
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Olivia S. Mitchell and Kent Smetters

Print publication date: 2003

Print ISBN-13: 9780199266913

Published to Oxford Scholarship Online: August 2004

DOI: 10.1093/0199266913.001.0001

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Hedging Segregated Fund Guarantees

Hedging Segregated Fund Guarantees

Chapter:
(p.214) Chapter 10 Hedging Segregated Fund Guarantees
Source:
The Pension Challenge
Author(s):

Olivia S. Mitchell (Contributor Webpage)

Kent Smetters (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/0199266913.003.0010

Segregated funds have become popular investments for self-directed pension plans in Canada. This chapter examines the hedging strategies that allow underwriting companies to lower their risk exposure to these contracts. The simple delta-neutral hedging strategy can reduce downside risk if it is possible to set up a hedging position using the underlying mutual fund, or a perfectly correlated asset. However, the underlying mutual fund cannot be used when constructing the hedging portfolio.

Keywords:   segregated funds, hedging, risk management, maturity guarantees, Canada, investment

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