If an investment account grows based on variable returns, such as those from the S&P500, they may be vulnerable to sequence risk. Sequence risk is the volatility of the ultimate account balance of an investment involving multiple deposits that arises due to the possible permutations of annual returns. Two sequences of returns with the same annualized average can result in different final account balances if the investor makes multiple deposits across time. Our group sought to create a product that protects against the effects of sequence risk in an investment account that follows the S&P500 over a 30-year period, where the customer makes identical annual deposits. We used simulation techniques to investigate the premium needed for this protection at different confidence levels. This paper discusses those efforts and the various challenges that come with pricing and diversifying this policy.

• This report represents the work of one or more WPI undergraduate students submitted to the faculty as evidence of completion of a degree requirement. WPI routinely publishes these reports on its website without editorial or peer review.

Creator

• Letourneau, Matthew
• Cascone, Jack
• Pitts, Zachary

Publisher

• Worcester Polytechnic Institute

Identifier

• E-project-041624-132142
• 121120

Keyword

• Protection
• Actuarial
• Policy
• Sequence Risk

Advisor

• Abraham, Jon P.
• Posterro, Barry John

Year

• 2024

UN Sustainable Development Goals

• Not Specified

Date created

• 2024-04-16

Resource type

• Major Qualifying Project

Major

• Mathematical Sciences
• Actuarial Mathematics

Source

• E-project-041624-132142

Rights statement

• In Copyright