Sensitivity of Pension Fund's Balance Sheet: a non-linear risk factor approach

Zhun Peng ()
Additional contact information
Zhun Peng: University of Evry and EPEE

No 15-06, Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne

Abstract: In this paper, we study the funding situation of a representative pension fund when it is exposed to extreme shocks of financial markets. We measure the exposure of both asset and liability sides of the fund’s balance sheet and especially when the benefit obligations use a market based discount rate. By assigning different market indexes to the main items of the fund’s balance sheet, we are able to compute the expected funded status conditionally on extreme shocks to different financial markets. We also take into account the links between the corresponding indexes thanks to the CVine Risk Factor (CVRF) model combining factors and copulas. In particular we are able to measure the exposure of the funding status of the fund to extreme shocks to different risk factors (equity, bond, real estate etc...). We find that the fund is particularly exposed to large shocks to the equity risk factor, even if diversification benefits can exist because such shocks simultaneously induce a drop in the asset values and a decrease in the discounted value of the liabilities. However, the first decrease is larger than the second one, thus the funding situation is declined.

Keywords: Regular vine copula; Factorial model; Pension Funds; Stress testing (search for similar items in EconPapers)
JEL-codes: G23 G32 J32 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2015
New Economics Papers: this item is included in nep-age and nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.univ-evry.fr/fileadmin/mediatheque/uev ... es/Epee/wp/15-06.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eve:wpaper:15-06

Access Statistics for this paper

More papers in Documents de recherche from Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne Contact information at EDIRC.
Bibliographic data for series maintained by Samuel Nosel ().