I am working on an analysis to estimate financial risks, especially for pension funds.
More specifically, I am trying to define some stress scenarios which could have an affect on the solvency of a pension fund. I am looking three years into the future for this analysis.
I have come up with the following scenarios:
- Lover discounting curve: The ultimate forward rate will be reduced from 4.2 to 2.2 percent.
- Lower returns: Returns on equity and property is reduced to 0 percent.
- Lower returns 2: Returns on equity and property is reduced to 0 percent while credit bonds are reduced with 0.5 - 2 percentage points dependent on credit rating.
- Market crash: Instantaneous returns of -30 % on equity, -15 % on property and -5 to -15 % on credit bonds dependent on credit rating. After this, the yearly returns on equity is reduced to 3 % and on property to 2 %.
Are these stresses sound? Are there other likely scenarios, which could be interesting to examine?