Financial crisis: a new measure for risk of pension funds assets

M. Cadoni, Roberta Melis and A. Trudda

Working Paper CRENoS from Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia

Abstract: It has been debated that pension funds should have limitations on their asset allocation, based on the risk profile of the different financial instruments available on the financial markets. This issue proves to be highly relevant at times of market crisis, when a regulation establishing limits to risk taking for pension funds could prevent defaults. In this paper we present a framework for evaluating the risk level of a single financial instrument or a portfolio. By assuming that asset returns can be described by a multifractional Brownian motion, we evaluate the risk using the time dependent Hurst parameter H(t) which models volatility. To provide a measure of the risk, we model the Hurst parameter with a random variable with beta distribution. We prove the efficacy of the methodology by implementing it on different risk level financial instruments and portfolios.

Keywords: pension funds; risk control; multifractional brownian motion (search for similar items in EconPapers)
JEL-codes: C22 G11 G23 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-age, nep-ban and nep-rmg
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cns:cnscwp:201231

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