Improving Sweden's Automatic Pension Adjustment Mechanism

The public pension world has seen two innovations in recent years. One is the emergence of notional defined contribution (NDC) plans. The other is the introduction of automatic adjustment mechanisms to help keep pension systems solvent when the economy weakens. This brief looks at the Swedish system to demonstrate how NDCs work and evaluates the work­ings of the automatic adjustment mechanism in the wake of the 2008 financial crisis. Sweden passed reform legislation in 1994 that in­troduced a partially-funded NDC plan.1 The arrange­ment is conceptually similar to a defined contribution plan in that contributions are accumulated in indi­vidual accounts, but different in that the accounts are not fully funded and may be financed entirely on a pay-as-you-go basis. In this setting, the rate of return credited on the account assets is based on a rule rath­er than on actual returns. The Swedish system uses a notional interest rate equal to the rate of growth of average earnings. However, if a calculation suggests a potential deficit, the notional interest rate is auto­matically reduced through a “brake” mechanism. The recent financial crisis has highlighted ways in which the brake mechanism could be improved. This brief proceeds as follows. The first section describes Sweden’s NDC plan. The second describes the Swedish brake mechanism. The third describes two problems with the current adjustment procedure: 1) it creates the likelihood of large shocks for retir­ees; and 2) while disadvantaging retirees, it tends to advantage workers. The fourth section presents pos­sible fixes for the current problems. The final section concludes that the Swedish NDC plan could function more effectively with modest changes to the brake mechanism.

Credit Valuation Adjustment

Credit risk has become a topical issue since the 2007 Credit Crisis, particularly for its impact on the valuation of OTC derivatives. This becomes critical when the credit risk of entities involved in a contract either as underlying or counterparty become highly correlated as is the case during macroeconomic shocks. It impacts the valuation of such contracts through an additional term, the credit valuation adjustment (CVA). This can become large with such correlation. This thesis outlines the main approaches to credit risk modelling, intensity and structural. It gives important examples of both and particular examples useful in the calculation of CVA, the intensity model of Brigo and the structural model of Hull and White. It details Brigo's market standard model independent framework for derivatives valuation with CVA. It does this for both its unilateral form where only one counterparty is credit risky and also for its bilateral form where both counterparties are credit risky. This thesis then shows how these frameworks can be applied to the valuation of a credit default swap contract (CDS). Finally, it shows how Brigo's and Hull and White's model for credit risk apply to the valuation of the CVA of CDS and draws comparisons, especially based on their ability to capture correlation effects

Moderating effect of gender and age on the relationship between emotional intelligence with social and academic adjustment among first year university students

This study examined whether emotional intelligence is significantly correlated with social adjustment and academic adjustment. It also explored the moderating effects of gender and age factors and their linked between emotional intelligence and social adjustment as well as academic adjustment among first year university students. 289 first year university students (148 males and 141 females) at the Irbid Govern Orate, North of Jordan, participate in the study and were categorized based on two age groups, younger students between the age of 18 – 25 and older students between the range of 26 and above. Two valid and reliable instruments were used to assess student’s emotional intelligence, social adjustment and academic adjustment. Correlation and multi-group analysis using structural equation model were used to analyse these data. The result shows no significant relationship between emotional intelligence and of both social adjustment and academic adjustment. In addition, the moderating effect of gender was not found. However, the moderating effect of age on the relationship between emotional intelligence with social adjustment and academic adjustment were established

Trajectories of university adjustment in the United Kingdom: Emotion management and emotional self-efficacy protect against initial poor adjustment

Little is known about individual differences in the pattern of university adjustment. This study explored longitudinal associations between emotional self-efficacy, emotion management, university adjustment, and academic achievement in a sample of first year undergraduates in the United Kingdom (N=331). Students completed measures of adjustment to university at three points during their first year at university. Latent Growth Mixture Modeling identified four trajectories of adjustment: (1) low, stable adjustment, (2) medium, stable adjustment, (3) high, stable adjustment, and (4) low, increasing adjustment. Membership of the low, stable adjustment group was predicted by low emotional self-efficacy and low emotion management scores, measured at entry into university. This group also had increased odds of poor academic achievement, even when grade at entry to university was controlled. Students who increased in adjustment had high levels of emotion management and emotional self-efficacy, which helped adaptation. These findings have implications for intervention

Salaries of Members of Congress: Congressional Votes, 1990-2014

The automatic annual adjustment for Members of Congress is determined by a formula using a component of the Employment Cost Index (ECI), which measures rate of change in private sector pay. The adjustment automatically takes effect unless (1) Congress statutorily prohibits the adjustment; (2) Congress statutorily revises the adjustment; or (3) the annual base pay adjustment of General Schedule (GS) federal employees is established at a rate less than the scheduled increase for Members, in which case the percentage adjustment for Member pay is automatically lowered to match the percentage adjustment in GS base pay. In the past, Member pay has been frozen statutorily in two ways: (1) directly, through legislation that freezes salaries for Members but not other federal employees, and (2) indirectly, through broader pay freeze legislation that covers Members and other specified categories of federal employees. Under the formula, Members may not receive an annual pay adjustment greater than 5%. This adjustment formula was established by the Ethics Reform Act of 1989. Votes on the annual adjustments since the implementation of this act are contained in this report

Central Clearing Valuation Adjustment

This paper develops an XVA (costs) analysis of centrally cleared trading, parallel to the one that has been developed in the last years for bilateral transactions. We introduce a dynamic framework that incorporates the sequence of cash-flows involved in the waterfall of resources of a clearing house. The total cost of the clearance framework for a clearing member, called CCVA for central clearing valuation adjustment, is decomposed into a CVA corresponding to the cost of its losses on the default fund in case of defaults of other member, an MVA corresponding to the cost of funding its margins and a KVA corresponding to the cost of the regulatory capital and also of the capital at risk that the member implicitly provides to the CCP through its default fund contribution. In the end the structure of the XVA equations for bilateral and cleared portfolios is similar, but the input data to these equations are not the same, reflecting different financial network structures. The resulting XVA numbers differ, but, interestingly enough, they become comparable after scaling by a suitable netting ratio

Adjustment and social choice

We discuss the influence of information contagion on the dynamics of choices in social networks of heterogeneous buyers. Starting from an inhomogeneous cellular automata model of buyers dynamics, we show that when agents try to adjust their reservation price, the tatonement process does not converge to equilibrium at some intermediate market share and that large amplitude fluctuations are actually observed. When the tatonnement dynamics is slow with respect to the contagion dynamics, large periodic oscillations reminiscent of business cycles appear.Comment: 13 pages, 6 figure

Young children's interpersonal trust consistency as a predictor of future school adjustment

Young children’s interpersonal trust consistency was examined as a predictor of future school adjustment. One hundred and ninety two (95 male and 97 female, M age = 6 years 2 months, SD age = 6 months) children from school years 1 and 2 in the United Kingdom were tested twice over one-year. Children completed measures of peer trust and school adjustment and teachers completed the Short-Form Teacher Rating Scale of School Adjustment. Longitudinal quadratic relationships emerged between consistency of children’s peer trust beliefs and peer-reported trustworthiness and school adjustment and these varied according to social group, facet of trust, and indictor of school adjustment. The findings support the conclusion that interpersonal trust consistency, especially for secret-keeping, predicts aspects of young children’s school adjustment