Welfare analysis of conditional indexation schemes from a two-reference-point perspective

R. Dai, J.M. Schumacher

Research output: Contribution to journalArticleScientificpeer-review

4 Citations (Scopus)


Conditional indexation has recently attracted interest with pension funds that are looking for a middle way between defined benefit and defined contribution. In this paper, we analyze conditional indexation schemes from a life-cycle investment perspective. Welfare analysis is applied to investigate the performance of such schemes relative to alternative investment strategies such as fixed-mix policies. We carry out this analysis in the context of a broad family of utility functions, which takes into account the possible presence of two benchmark levels corresponding to a minimum guaranty and to full indexation, respectively. For the purpose of comparability, we construct a self-financing continuous-time implementation of the conditional indexation scheme. The implementation involves continual adjustment of the parameters of the contingent claim representing final payoff. Our findings indicate that, in situations where large weight is placed on the benchmark levels, conditional indexation is fairly close to being optimal.
Original languageEnglish
Pages (from-to)321-350
JournalJournal of Pension Economics & Finance
Issue number3
Publication statusPublished - 2009


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