Student Work

Pricing a Sequence Risk Protection Product

Público Deposited

Conteúdo disponível para baixar

open in viewer

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
Publisher
Identifier
  • E-project-041624-132142
  • 121120
Palavra-chave
Advisor
Year
  • 2024
UN Sustainable Development Goals
Date created
  • 2024-04-16
Resource type
Major
Source
  • E-project-041624-132142
Rights statement

Relações

Em Collection:

Itens

Itens

Permanent link to this page: https://digital.wpi.edu/show/2r36v271d