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Global Asset Return in Pension Funds: a dynamical risk analysis

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  • Sergio, Bianchi
  • Alessandro, Trudda

Abstract

The aim of the paper is to develop a technique for rebalancing pension fund portfolios in function of their pointwise level of risk. The performance of pension funds is often measured by their global asset returns because of the latter’s influence on periodic contributions and/or future benefits. However, in periods of market crisis attention is focused on the risk level given their social security (and not speculative) function. We describe the process of the global asset return by a multifractional Brownian motion using the function H(t) to detect high or low volatility phases. A procedure is carried out to balance the asset composition when the established local degree of risk is exceeded. The application is carried out on portfolios obtained in accordance with Italian regulations regarding investment limits.

Suggested Citation

  • Sergio, Bianchi & Alessandro, Trudda, 2008. "Global Asset Return in Pension Funds: a dynamical risk analysis," MPRA Paper 12011, University Library of Munich, Germany, revised 14 Jun 2008.
    • Handle: RePEc:pra:mprapa:12011
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    File URL: https://mpra.ub.uni-muenchen.de/12011/1/MPRA_paper_12011.pdf
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    References listed on IDEAS

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    1. Jacob A. Bikker & Dirk W.G.A. Broeders & Dirk Jan de Dreu, 2010. "Stock Market Performance and Pension Fund Investment Policy: Rebalancing, Free Float, or Market Timing?," International Journal of Central Banking, International Journal of Central Banking, vol. 6(2), pages 53-79, June.
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    3. Sergio Bianchi, 2005. "Pathwise Identification Of The Memory Function Of Multifractional Brownian Motion With Application To Finance," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 255-281.
    4. Srichander Ramaswamy, 1997. "Global asset allocation in fixed income markets," BIS Working Papers 46, Bank for International Settlements.
    5. Dempster, M. A. H. & Germano, M. & Medova, E. A. & Villaverde, M., 2003. "Global Asset Liability Management," British Actuarial Journal, Cambridge University Press, vol. 9(1), pages 137-195, April.
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    8. Haberman, Steven, 1997. "Stochastic investment returns and contribution rate risk in a defined benefit pension scheme," Insurance: Mathematics and Economics, Elsevier, vol. 19(2), pages 127-139, April.
    9. Haberman, Steven & Sung, Joo-Ho, 1994. "Dynamic approaches to pension funding," Insurance: Mathematics and Economics, Elsevier, vol. 15(2-3), pages 151-162, December.
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    Cited by:

    1. Marinella Cadoni & Roberta Melis & Alessandro Trudda, 2015. "Financial Crisis: A New Measure for Risk of Pension Fund Portfolios," PLOS ONE, Public Library of Science, vol. 10(6), pages 1-12, June.
    2. Cadoni, Marinella & Melis, Roberta & Trudda, Alessandro, 2017. "Pension funds rules: Paradoxes in risk control," Finance Research Letters, Elsevier, vol. 22(C), pages 20-29.
    3. M. Cadoni & R. Melis & A. Trudda, 2012. "Financial crisis: a new measure for risk of pension funds assets," Working Paper CRENoS 201231, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.

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    More about this item

    Keywords

    Pension Funds; risk control; multifractional Brownian motion;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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