Task 3

[HD]

Discussions for task 3 of the CDEF scenario.

[Katherine Garner]

Starting this task this morning. I do not know what to write for the first question besides assigning more allocation classes in the model and maybe additional expenses? I'm trying very hard to not lack in detail since I don't want to have to take the FA again!!

[3rdtimesacharm]

This is what  I did and I DNMMR....also struggling to figure out what other changes to make

[HD]

In addition to what you already mentioned, I am suggesting adding more input fields to allow different weights to be applied to these additional assets, separate stochastic return assumptions for gold, and maybe a separate asset management cost. I'm debating whether to include a sentence saying make the rest of the spreadsheet available so I can see what's going on in this "Model Results" tab! Would probably help us understand this whole project a lot better.

[Katherine Garner]

Yeah, I have a feeling they don't show that tab for a reason...But it makes it very difficult to suggest changes to the model when we're unsure how the model is working without that tab in the first place.

[Jared]

If you create a new tab and set cell A1 to ='Results'!A1, you will see the word "Results". If you drag the formula around, it will uncover the rest of the values in the results tab. It will pick up some zeros along the way, which can be deleted. What if you were to do that for the hidden tab...

It's not much really. It just shows the results of 1000 scenarios, but none of the underlying numbers for those scenarios. I'm pretty sure values are pulled from yet another super-hidden tab containing monte carlo run parameters.

[Katherine Garner]

Whoa, that's genius! 

[Jared]

Pseudo-code for what's going on would probably look like this:

i = FirstScenario

while i <= LastScenario

{

     CurrentAssetMix = Assetmix[i]

     for( j in 1:1000){

          annual_returns = monte_carlo[j]

          set cost_per_employed such that ending_balance = 0

          results_vector[j] = cost_per_employed

     }

     i = i+1

}

[Jared]

For people unversed in coding (which we might have to be if we fail the FA given the upcoming predictive analytics exam), it looks like the asset mix is taken from your input and checked against 1000 possible scenarios of asset returns. For each of these scenarios, it solves the cost per person such that the fund falls bankrupt right as the program ends 30 years from now. It saves the value of the cost per person in an array, and when finished, returns the results of that array (mean, VaR(95), CTE(70), etc...) to the results tab.

[HD]

Here's a Schwab portfolio asset allocation article that may be useful for asset recommendations. It talks about risk correlation and gives an example of a risk/return profile from investing in gold as a diversification strategy.
https://intelligent.schwab.com/public/intelligent/insights/whitepapers/asset-allocation.html

[Jason Wong]

In regards to question 5 of task 3, did you guys provide a new asset class or a mitigation tactic? It seems like most of the asset classes have already been discussed besides foreign currency (https://en.wikipedia.org/wiki/Asset_classes) which leads to providing a new mitigation approach. My concern is that we should have already provided mitigation strategies in task 1 when we identified the key risks. 

[Katherine Garner]

I was really tempted to mention BitCoin although I don't know how amused my grader would be lol

[HD]

Jason, the article I linked above has some food for thought for different asset classes based on their roles in a portfolio under the "Asset Class Roles with the Portfolio" heading. Might spark some ideas.

To your last point, if we think of this entire CDEF investment portfolio design as a continuing process that happens through time (annual asset mix review), it's not a bad thing if you can help them come up with a new asset class with a new mitigation strategy. I'd personally only talk about it as 1 or the other just to be extra clear for the grader.

[Tim Hall]

Do you guys think using Immunization for the asset/liability cash flows is a good "approach"? I feel like it makes sense but I am unsure if there are red flags about that I ma be missing

[Jason]

I think that would be fine Tim, it might be best if you could even tie it in with the specialized asset you recommended. 

[Katherine Garner]

I'm coming back to this question again because I can't, for the life of me, think of another asset class. Everything seems to be covered besides commodities other than gold?? Do you think specifying a certain type of equity is okay?

[Jared]

Think outside the box. And by outside the box, I mean outside Cascadia.

[JL]

instead of adding an additional asset, you could provide an approach to mitigate risks

[Zoo Keeper]

"In regards to question 5 of task 3, did you guys provide a new asset class or a mitigation tactic? It seems like most of the asset classes have already been discussed besides foreign currency (https://en.wikipedia.org/wiki/Asset_classes) which leads to providing a new mitigation approach. My concern is that we should have already provided mitigation strategies in task 1 when we identified the key risks. "

Wiki is a bad place to go for alternative asset class. 

Understanding Actuarial Management Ch 14 is good for additional asset class. If you have the CD, there's an article that gives you many non-traditional asset classes and why people invest in them. 

[Anika]

Just curious, for #3, did you guys recommend one specialized asset, or more than one? And for the one(s) you didn't pick, did you explain why you wouldn't recommend them?

[Anika]

I agree with this. Don't have the CD, but I'm using an asset from this chapter as well.

[Jason]

Im out of luck since I don't have the textbook. Is there an online version that is openly accessible like the Segal text from EOM4? 

[Jason]

Anika I only chose one specialized asset but I think choosing any number to add is okay as long as you justify it. 

I also discussed why I wouldn't add the other assets in my case.

[JL]

in question 5, it asks for additional asset class or apporach that mitigates risks.the risks here refer to the risk of the portfolio? or the risks of specialized assets?

[Anika]

JL, I took it as mitigating the risks of the portfolio. We are given 3 assets to analyze, and then they're asking for an additional class or approach for you to come up with and explain.

Jason, the asset I used from the book could also count as a risk mitigation approach, as it's a form of hedging.