Pension funds are financial institutions that invest retirement savings from workers to provide pension benefits. Due to this social security function, each country enforces laws to regulate investments. Usually regulations identify pension portfolio's risk level based on the nature of its financial products. After the latest financial crisis, it became evident that such approach may not be sufficient to control the risk. In this paper we measure risk level with a multifractional Brownian motion with random exponent. We show how current rules can lead to paradoxes, where portfolios which comply with the laws are riskier than those that do not.
Pension funds rules: Paradoxes in risk control / Cadoni, Marinella Iole; Melis, Roberta; Trudda, Alessandro. - In: FINANCE RESEARCH LETTERS. - ISSN 1544-6123. - 22:(2017), pp. 20-29. [10.1016/j.frl.2017.05.003]
Pension funds rules: Paradoxes in risk control
CADONI, Marinella Iole;MELIS, Roberta;TRUDDA, Alessandro
2017-01-01
Abstract
Pension funds are financial institutions that invest retirement savings from workers to provide pension benefits. Due to this social security function, each country enforces laws to regulate investments. Usually regulations identify pension portfolio's risk level based on the nature of its financial products. After the latest financial crisis, it became evident that such approach may not be sufficient to control the risk. In this paper we measure risk level with a multifractional Brownian motion with random exponent. We show how current rules can lead to paradoxes, where portfolios which comply with the laws are riskier than those that do not.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
