New research on capital structure choices and pension fund allocation decisions

Written on 03 Apr 2021.

printer-friendly version

We are pleased to enclose an EDHEC-Risk Institute research article published in the Volume 20, Issue 2 of Journal of Pension Economics and Finance.

In this article "Capital structure choices, pension fund allocation decisions and the rational pricing of liability streams", authors Lionel Martellini and Vincent Milhau proposes an integrated model for capital structure choices and pension fund allocation decisions, a needed tool to correctly assess the value of a pension plan.

Journal of Pension Economics & Finance

TOPICS: Asset-liability management, Capital structure, Corporate pension plan, Default risk



The publication has macro implications for the accounting regulation of pension funds, and micro implications for the funding and the management of pension plans. 

The authors confirm that capital structure decisions have a substantial impact on the value of pension claims, and they provide a quantitative assessment of the mispricing induced by the use of an arbitrary regulatory discount rate.

They also present a quantitative assessment of the asset substitution effect implied by a change in the pension fund allocation to risky assets taking place after the corporate and pension obligation claims have been issued.


Lionel Martellini is a Professor of Finance at EDHEC Business School and the Director of EDHEC-Risk Institute. He is a former member of the faculty at the Marshall School of Business, University of Southern California, and he has also taught at UC Berkeley and Princeton University. He is a member of the editorial boards of The Journal of Portfolio Management, The Journal of Alternative Investments, and The Journal of Retirement. He conducts active research on a broad range of topics related to investment solutions for individual and institutional investors, equity and fixed-income portfolio construction, risk management, and derivatives valuation. He holds several Master’s degrees as well as a PhD in finance from the Haas School of Business, University of California at Berkeley.


Vincent Milhau is a Research Director at EDHEC-Risk Institute. He is in charge of several research projects conducted at the Institute in the fields of portfolio optimization and asset allocation for institutional or individual investors. Most of these projects are funded by large industry players interested in the latest advances in risk management and asset allocation. Vincent’s main research focus is on the application of stochastic calculus and asset pricing theory to optimal portfolio choice, and on the design and the implementation of investment solutions that reach investors’ objectives.