n Journal of Emerging Trends in Economics and Management Sciences - Controversy between financial economics and traditional actuarial approach to pension funding

Volume 1, Issue 1
  • ISSN : 2141-7024
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The debate between financial economics and traditional actuarial science has continued to attract the attentions of the academics and practitioners from various disciplines around the world. A survey of literature does not produce much consensus between the two sides of the debate. Actuaries largely seek to place value on cash flow stream, whereas financial economists believe market should do that for them since value is subjective while price is objective. The debate focuses on two main issues: the appropriate model used to value pension liabilities, and how pensionassets should be invested. The financial economists contend that pension benefits are bond-like and therefore should be valued by reference to a matching bond portfolio. This study considered these issues with a view to reconciling the actuarial methods to financial economics thinking by exploring the four major principles of financial economics in light of actuarial practice.

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