On the affinity between PWR and SPV

This is a guest post from a reader that contacted me after I did some posts on the affinity between a net wealth dispersion process (aka MC sim if it is done right) and stochastic present values (SPV or feasibility).  The reader, self-described as "You can list me as "Rodney Smith, another (very) amateur retiree interested in retirement finance" made the case (said he had a short proof) that PWR and SPV are allied as well.  Doesn't surprise me, I think. Most of the math in the retirement stuff I see uses same or similar parameters for vaguely related ends. I told him "cool, send it up and I'll put it on the blog for my three readers." Heh.

Here, without comment or checking his work (I am not an instructor, just a corner-cutting old-man blogger), is his proof. Thanks Rodney. 

Real option value of spending less over 20 year horizon

The basic premise here is me trying to figure out the "real option value" of different allocation and spend choices over a 20 year horizon (65->85...ie when I might annuitize stuff) where the strike is the then cost of annuitizing $1 of consumption conditional on a longevity estimate at age 85 plus some margin of error (the strike). 

The absurd simplicity of my own retirement process

This from a PhD-pension-dude yesterday to someone else about my last post: "...he could use some help..."  Heh. No doubt. But probably not in the way he thinks.  What I need help with is getting firmly into what I call act IV of my V-act life and/or monetizing what I've learned.  What I need less help on is blogging or retirement finance.  And anyway, PhD dude is still young and getting paid. He doesn't feel any of this in a real way yet. 

[revised] On the alliance between fail rates and household balance sheets - Part 2

I thought I'd take this past post [On the alliance between fail rates and household balance sheets] a little further.  The post-theme here, in case you want to bail out now, is on the affinity between MC simulation and stochastic present values in some quant terms. My goal here is not really to explain anything to anyone but more to try to consolidate something I didn't understand very well. This self-consolidation may nor may not interest anyone but me. 

Random Thoughts on Portfolio Choice and its Discontents

This has never been a teaching blog but rather a reportage-of-my-learning blog. Two different things. That means a lot of my stuff comes out like any work-product of autodidacts: spotty, holes, not 100% coherent across topics, un-tutored in others, etc. On the other hand that allows me to roll with whatever - which is what I'll do here.  I don't really have a tight theme or thesis just some thoughts from some recent spreadsheeting last week. 

Benford and Retirement Simulation

 I was watching a show on Netflix last night on Benford's Law and wondered if it would hold in the "fake worlds" I create in simulation.  This is a quick drive-by only.  The basic idea of "the Law" is something I extracted (selectively and exclusively) from Wikipedia:  

Adding incremental uncertainty to a consumption utility model

I once joked on Twitter that extreme "risk aversion" (in terms of the coefficient and the convex CRRA model iteself) was less of an "economic" topic and more one of psychotherapy. Heh. I got some pushback on that from a retirement quant but I think in the far-extreme it makes sense.  If one were to be so risk averse in the non-financial sense that one couldn't leave the house, that is not the domain of models and math but of getting mental health help to reduce the aversion.  

Asset Classes, Efficient Frontiers and Time

This post falls, like others in the past, into the category of "I wonder what it looks like?" There is no agenda here and all of the input parameters are absolutely 100% arbitrary and are not shaken against any other parameters to see anything else other than just "what happens with the first set?" I hate to say it and my gf would shake her head but this is just a joy ride. The main question here is:

What happens to an efficient frontier when going from a 2 asset portfolio to a 5 asset portfolio but especially when the EF for both is re-rendered using a "realized geometric return at infinity" adjustment?