onelife1

janakisri wrote:
esandun: even though the pension fund is fully funded today , the obligations of the fund still lay a claim on the assets of the corporation . This is modeled with put and call options on the various asset components of the corporation .  For example future funding for the pension is hugely contingent on the continued strength of the fund sponsor as well as the leverage  in the  sponsor balance sheet ( i.e. the debt they acquire ). Any model that tries to derive a discount rate for the pension liabilities definitely makes path dependent assumptions for the variables that drive the sponsor’s financial health
Just because currently the fund is fully funded does not mean that they are free to declare independence from the sponsoring firm for future unmet obligations . Actuarial numbers for liabilities have built in assumptions too which can be modeled with probabilities .options probably are the best market model representation of risky assets and risky liabilities . All options come loaded with contingent claims.
2010 mock q 34 answer explanation supports my argument.