Comparison between nominal and real indexation systems of Dutch pension fund

This thesis compares the nominal and real indexation mechanisms in theDutch pension system. To measure the asset and liability of the pension fund, a term structure is needed. We adopt the Vasicek model to estimate the current term structure. Then, we simulate the future stochastic term structures and wage index as well as the return on the assets. Using these simulation results as inputs, we establish a stylized pension fund and investigate how the pension assets, liabilities, and pension rights of the retirees evolve over time under both the nominal indexation system and the real indexation system. Furthermore, we compare the replacement rates and pension assets under both systems to see whether one system is superior to the other.