Research On The Index Adjustment Of The Defined Benefit Pension

The pension plan is an important part of the modern social security system, with the sustainable development of pension plans. Then forming a multi pillar pension plans. It can be divided into the national public pension plan, employer pension plans and individual commercial pension insurance. The national public pension plan is mainly used to ensure the basic living standards of the people after retirement. The last two kinds of pension plan is a supplement to the national public pension plan, which is used to improve the quality of life of the retired workers. The pension plan also can be divided into the defined benefit plan (DB plan) and the defined contribution plan (DC plan). The essence of the pension plan is to provide money to employees after retirement. Pension plan participants are not concerned about the pension itself, but its purchasing power. In modern economy, inflation is the main factor to the erosion of pension. Technology progress, labor productivity and population aging will also reduce the relative purchasing power of pension. Therefore, it is necessary to carry out a variety of the adjustment of the index, thus ensuring the purchasing power of the pension.In this paper, the option pricing theory is introduced to simplify the DB plan, and the options of the plan are obtained. We consider the Indexation rate, then make better to improve the valuation of the traditional asset and liabilities. Using the exchange option pricing formula, we get the valuation of call and put option in the defined-benefit Plan. Finally, the optimal indexation rate and optimal contribution rate are obtained. And the analysis of the results is provided. Then using the method of risk neutral pricing, we analyze the value of the indexation option implied in the DB plan under the stochastic inflation rate. Finally, through the numerical simulation under the condition of given parameters, the analysis of the results is provided. Then the results can insert into the balance sheet of the plan, so we get the holistic balance sheet. Therefore, it has great significance to the effective asset and liability management for the sponsor.Finally, the research results of this paper are summarized, and the prospects of this paper are given.