A predefined investment strategy of PF specifies the asset allocation into different levels of risk, what are those limits, how often it is calibrated, and what are the requirements for each asset class. The research studies published often emphasize the need to refine the investment strategy based on the changes in the market and historical results experienced up to date. The global financial crisis, fluctuations in the market, economic cycles or shocks are the examples of systemic risks that might have an adverse effect on the performance of PFs. We assume that the regulation of PFs also should react to the environmental changes. So the question is, how investment strategies and regulation of PFs should be changed during difficult times or relaxed under favourable market conditions. Therefore, the project goal – to build a model for pension fund regulation towards a more sustainable investment strategy in an uncertain environment. As such, the main tasks cover the developing components that define the investment rules of PF, regulation, restrictions applied, and also the main risks rising from the environment. In order to generate the sustainable investment strategy the optimisation model is formulated, which jointly minimizes the risk and maximizes the profit. Furthermore, the new technique of stress testing for PF performance will be developed. This leads to answering the main question of the research and, equally important, estimating the resilience of the pension system to unanticipated adverse long-term and short-term shocks, which might be particularly interesting for the market supervisor. This altogether contributes to economic and social welfare, also enhances participants’ confidence in the pension system. The project will be implemented in cooperation with Bank of Lithuanian, and scientists from Slovakia and Italy.
Projects funded by the Research Council of Lithuania (RCL), Projects carried out by researchers’ teams
Risk measure based on stochastic dominance
Period of project implementation: 2021-04-01 - 2024-03-31
Project coordinator: Kaunas University of Technology