Stress Testing Monte Carlo Assumptions
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Wharton Pension Research Council Working Papers
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Economics
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Abstract
Despite the evidence that returns are fat-tailed and that expected returns vary through time, most Monte Carlo simulations assume returns are independent and identically normally distributed. This study incorporates these return patterns in retirement simulations to illustrate how common assumptions about returns impact the output of Monte Carlo simulations.
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2013-10-01
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The published version of this Working Paper may be found in the 2014 publication: Recreating Sustainable Retirement: Resilience, Solvency, and Tail Risk (http://pensionresearchcouncil.wharton.upenn.edu/publications/books/recreating-sustainable-retirement-resilience-solvency-and-tail-risk/)