We analyze the rationale for the pay-as-you-go (paygo) pension system existence on diversi fication grounds. A continuous-time portfolio choice setting is built, basing on Merton (1971)´s analysis, where a reasonable balance between the taking account of the economic and fi nancial facets of...

When a firm sponsoring a defined benefit pension plan approaches financial distress, the Pension Benefit Guaranty Corporation (PBGC) insurance effect materializes and the optimal pension portfolio policy becomes aggressive. In this configuration, a regulation restricting the pension investment...