Rajni Jain and Vrinda Gupta have posted an article on SSRN titled "Pension Risk Under Extreme Scenarios - Capturing Tail Risk in Pension Schemes." The abstract is below:
"In this paper, we aim to capture the tail risk - risk under extreme scenarios - faced by pension schemes. Our analysis is based on US markets and we focus on a typical closed mature DB scheme. We introduce various extreme scenarios or shocks like stock market crash, bond market crisis, low bond yield, deflation and high salary growth in the pension scheme and then analyse how each one of them impacts the funding ratio. In addition to analysing the isolated impact of each shock, we also gauge the impact in a real world setting when all shocks are introduced together. From our analysis we conclude that the tail risk exposure of pension funds is high and any risk management plan must take tail risk into account."
Posted by Patrick Siegfried, Associate Editor, Wealth Strategies Journal.
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