Please enable JavaScript.
Coggle requires JavaScript to display documents.
Methods and models - Coggle Diagram
Methods and models
Criteria to assess funding methods
Durability
Realism
Flexibility
Liquidity
Opportunity cost
Level of security
Contribution stability
Asset-liability modelling
Stochastic approach
May help in assessing the risks and rewards...
...and achieving an appropriate balance between them.
Stochastic model for the economic cashflow elements
Model for demographic elements usually deterministic or scenario based.
For example, it can be used in funding strategies as the sponsor may wish the trustees to reject strategies where the probability of high contributions is significant
Approaches
Deterministic
Stochastic
Funding methods
Prospective benefits
Entry Age method
Aggregate method
Attained Age method
Accrued benefits
Projected Unit method
Current Unit method
Defined Accrued Benefits Method
Asset valuation
Most valuations, assets taken at market value
Advantages of MV
More easily understood
Objective
Valuation method
(approaches for deriving discount rate)
Market-related
Assets at MV
Discount rate
Asset based discount rate
Replicating portfolio
Mark to market (or market consistent)
bond yields plus risk premium
Issues
May require less subjectivity
Not all risks can be priced within the market rate
Considerable debate over the allowance for a risk premium in the discount rate