Financial statements contain corporate pension plan information. This information includes a value for the unfunded pension liability. The unfunded pension liability is the present value of the future expected difference between the underlying pension plan portfolio and the retirement day benefits. The distribution of possible differences provides a valuation problem for accountants. / The distribution of pension plan portfolio values translates into a distribution of unfunded pension liabilities. The valuation of this distribution of differences is similar to the valuation of a put. A put is a contingent claim which gives the holder the right to receive a specified payment (exercise price) at some future date in exchange for an asset (underlying security). The put has value because the uncertain underlying asset (pension plan portfolio) may have a value less than the exercise price (retirement benefits). The expectation of the present value of differences is the put value. This expectation of differences is analogous to valuing an unfunded pension liability. Therefore, models that are appropriate for valuing puts are appropriate for valuing unfunded pension liabilities. / The put valuation model used in this research is the Black-Scholes-Merton model. This model uses a riskless discount rate to discount future differences. A surrogate for the riskless discount rate is a Treasury Bill or Bond rate. Since corporations have an incentive to manipulate the value reported for the unfunded pension liability, a market-determined discount rate reduces the manipulative aspects of the discounting process. In addition, the plan portfolio is assumed to be a market portfolio. The market portfolio represents the risk preferences and beliefs of a market-based set of individuals. As such, the market portfolio fits the requirements of the ERISA of 1974 "prudent man" rule. / A simulation is used to test the sensitivity of the model to changes in the annual specification of variables. The results provide evidence that the model produces a range of values that is one-third the present total actuarial model range. This limited range and the market-determined riskless discount rate are the main advantages of this model. / Source: Dissertation Abstracts International, Volume: 43-09, Section: A, page: 3042. / Thesis (D.B.A.)--The Florida State University, 1982.
| Identifer | oai:union.ndltd.org:fsu.edu/oai:fsu.digital.flvc.org:fsu_74930 |
| Contributors | WILLINGER, GEOFFREY LEE., Florida State University |
| Source Sets | Florida State University |
| Detected Language | English |
| Type | Text |
| Format | 140 p. |
| Rights | On campus use only. |
| Relation | Dissertation Abstracts International |
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