Date of this Version
The paper motivates and describes a regime-switching macro-driven simulation model for the purposes of simulating long horizon asset returns. The paths generated by this model are compared to more common approaches – multivariate normal generators and a block bootstrap simulation. Despite calibration to the same mean and variance in returns, the models display divergent behavior in the tails of long horizon return simulations. Simulations are run through representative defined contribution and defined benefit applications to examine the filtered behavior and draw inferences for future applied research and application.
Working Paper Number
All opinions, errors, findings, interpretations, and conclusions of this paper represent the views of the authors and not those of the Wharton School or the Pension Research Council. © 2013 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.
Date Posted: 26 June 2019
The published version of this Working Paper may be found in the 2014 publication: Recreating Sustainable Retirement: Resilience, Solvency, and Tail Risk.