1) What does a cautious basis mean for options, eg late retirements, eg for question 8 of this chapter. 2) What does a weak basis mean in terms of options?
1) Generally, when setting the terms for options, a cautious approach is taken ie one which attempts to limit the risk or liability to the scheme if the member exercises the option. In the case of late retirement a cautious approach would be to use a cautious basis ie use low assumed rates of investment return and mortality (as described in the solution to Question 22.8) However using a cautious basis ie one which includes margins for prudence, will not necessarily be a cautious approach for all options... 2) ...For some options, using a weak or optimistic basis is a cautious approach. For example, using a weak basis to calculate the value of a transfer out will lead to a relatively low TV, which means that the scheme makes a saving if the member transfers out.
