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Financial crisis: a new measure for risk of pension fund portfolios

Cadoni, Marinella Iole and Melis, Roberta and Trudda, Alessandro (2015) Financial crisis: a new measure for risk of pension fund portfolios. PLoS One, Vol. 10 (6), e0129471. ISSN 1932-6203. Article.

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DOI: 10.1371/journal.pone.0129471

Abstract

It has been argued 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 the log 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 mixture of beta distribution. We prove the efficacy of the methodology by implementing it on different risk level financial instruments and portfolios.

Item Type:Article
ID Code:11771
Status:Published
Refereed:Yes
Uncontrolled Keywords:Finance, brownian motion, random variables, telecommunications, Monte Carlo method, probability density, regulations, stochastic processes
Subjects:Area 09 - Ingegneria industriale e dell'informazione > ING-INF/05 Sistemi di elaborazione delle informazioni
Area 13 - Scienze economiche e statistiche > SECS-S/06 Metodi matematici dell'economia e delle scienze attuariali e finanziarie
Divisions:001 Università di Sassari > 01-a Nuovi Dipartimenti dal 2012 > Scienze Politiche, Scienze della Comunicazione e Ingegneria dell'Informazione
001 Università di Sassari > 01-a Nuovi Dipartimenti dal 2012 > Scienze economiche e aziendali
Publisher:Public Library of Science
ISSN:1932-6203
Copyright Holders:© 2015 Cadoni et al.
Deposited On:15 Jun 2017 09:06

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