Appraising Commitments and Guarantees with Option Prices

Authors: HANSEN, SØREN LOENTOFT¹; DOTHAN, MICHAEL U.²; THOMPSON, FRED²

Source: Public Budgeting and Finance, Volume 27, Number 4, Winter 2007 , pp. 99-112(14)

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Abstract:

Budgetary decision-making is prone to myopia and to tunnel vision. Pension commitments suffer from both of these pathologies. In this case, we look closely at the State of Oregon's Public Employee Retirement System to show how the disclosure standards adopted by the Government Accounting Standards Board (GASB) help correct the fiscal vision of state and local governments and further conclude that postemployment commitments ought to be comprehensively examined in GASB's review of its accounting and reporting standards scheduled for 2008, ideally from the standpoint of present-value budgeting.

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1540-5850.2007.00891.x

Affiliations: 1: University of Southern Denmark, Nansensgade 21, 2. tv., 5000 Odense C, Denmark, 2: Atkinson Graduate School of Management, Willamette University, 900 State Street, Salem, OR 97301

Publication date: 2007-12-01