In this paper, we propose a stochastic method to project the public pension fund in the public pension system (PPS). For this we introduce the stochastic differential equations for the three parts: the premium revenue, the benefit expenditure, and the fund process. From these we show that the solution of the aggregated fund process is the sum of log-normals, which is approximated as one log-normal for the analytic result. Related to the parameter estimations, we implement the moment matching in the first moment. For the second moment, we apply the extreme value method following Parkinson. In order to follow Parkinson, we take the maximum and the minimum range of the fund amount based on the various sensitivity result as well as the baseline one from the deterministic projection result. In this reason, it is naturally to maintain the close interrelation with the deterministic projection result, which is very important since it is still key result in the actuarial valuation of the PPS.
|Number of pages||11|
|Journal||Probability in the Engineering and Informational Sciences|
|Publication status||Published - 2017 Apr 1|
Bibliographical noteFunding Information:
The research of Sungchul Lee was supported by Basic Science Research Program through the National Research Foundation of Korea (NRF) funded by the Ministry of Education, Science and Technology (grant no. NRF-2013R1A1A2004762). The research of Geonwoo Kim was supported by the National Research Foundation of Korea grant funded by the Korea government (MSIP) (grant no. NRF-2015R1C1A1A02037533) and BK21 PLUS SNU Mathematical Sciences Division.
© Cambridge University Press 2016.
All Science Journal Classification (ASJC) codes
- Statistics and Probability
- Statistics, Probability and Uncertainty
- Management Science and Operations Research
- Industrial and Manufacturing Engineering