Liability Hedging and Portfolio Choice

The bestselling author of Portfolio Construction and Risk Budgeting brings you the first book of its kind to provide a detailed insight into the interplay between liability calculations, the use of derivatives (including the highly innovative market in inflation derivatives), accounting rules and corporate finance. Liability Hedging and Portfolio Choice provides you with a unique market value/corporate finance approach, instead of the outdated accounting/actuarial framework. After all, the actuarial approach has been the main cause for the recent pension crisis and is inconsistent with modern asset pricing and valuation theory. The book brings you expert guidance on the following topics: - Valuation of pension liabilities - Internal versus external funding - Liability hedging (interest rate risk and inflation risk) - Portfolio choice and liability relative investing - Theory of the firm versus portfolio theory Furthermore, the book argues that the correct approach to view pension liabilities is from a treasury / risk management perspective rather than formulating it as a variation of surplus optimisation. Pension liabilities are essential one way of (more or less complex) structured borrowing from employees and hence very close in concept to issuing corporate bonds to employees. Accepting this demands a complete rethink in terms of valuation, hedging and stakeholder claims. The book offers an integrated corporate finance / risk management approach that is fully consistent with corporate decision making. What’s more it provides invaluable guidance on the use of derivatives, including inflation derivatives, to hedge liabilities. Highly accessible and packed with all new research the book is ideal for derivatives desks, pension funds, trustees, asset management firms, academia or anyone with an interest in derivatives or pension economics.