Contingent claims analysis is used to value governmnet guarantees associated with defined
contribution pension plans. Values are derived for two types of guarantees on the rate of
return earned by an individual pension fund: a guarantee of a fixed minimum rate of return
and a guarantee of a minimum rate of return that is set relative to the performance of other
pension funds. The value of a minimum pension benefit guarantee for a participant in a
mandatory defined contribution pension plan is also derived. Values for each of these …

Government guarantees associated with defined contribution pension plans were valued
using contingent claims analysis. The values were derived for two types of guarantees on
the rate of return earned by an individual pension fund. Typical parameter values were used
to illustrate values for each of the guarantees. A unifying framework for valuing these
guarantees by either numeric computation using a Monte Carlo simulation or an explicit
formula was provided by the Martingale pricing theory.