Method of determining optimal asset allocation utilizing asset cash flow simulation
First Claim
1. A computer program product storing computer instructions therein for instructing a computer to determine a substantially optimal asset allocation utilizing cash flow simulation, the computer program product comprising:
- a recording medium readable by the computer; and
,computer instructions stored on said recording medium, wherein the computer instructions instruct the computer to;
(a) permit a user to select at least one of a risk avoidance weight or a rate of return for a given retirement plan;
(b) facilitate the selection, by at least one of the user and the computer, of a plurality of asset allocations, wherein the plurality of asset allocations includes at least one of a fixed income or an equity asset;
(c) determine a performance index for each asset allocation in the selected plurality of asset allocations, wherein the performance index determination is made by;
i) generating one or more risk tolerance baselines based on one or more user defined risk tolerance factors;
ii) simulating benefit and asset cash flows as future financial projections based on plan benefit cashflows and each asset allocation in the selected plurality of asset allocations;
iii) determining if at least one risk tolerance failure occurs by comparing the future financial projections with the one or more risk tolerances; and
,iv) assigning a performance index to each of the selected plurality of asset allocations based on at least said determining step (iii); and
,(d) indicate to the user that the asset allocation with the best performance index from among the plurality of selected asset allocations is the substantially optimal asset allocation.
2 Assignments
0 Petitions
Accused Products
Abstract
A method of simulating future cash flow for a given asset allocation under a variety of economic conditions, measuring the frequency of failure of the cash flow to avoid one or more predefined risks. Assigning user-selected weights to avoidance of specified risks and alternative user-selected weights to maximization of rate of return, the invention utilizes the cash flow simulation to produce a performance index. By methodological testing through asset allocation adjustments, the optimum performance index is determined, thereby identifying the optimum asset allocation.
50 Citations
62 Claims
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1. A computer program product storing computer instructions therein for instructing a computer to determine a substantially optimal asset allocation utilizing cash flow simulation, the computer program product comprising:
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a recording medium readable by the computer; and
,computer instructions stored on said recording medium, wherein the computer instructions instruct the computer to; (a) permit a user to select at least one of a risk avoidance weight or a rate of return for a given retirement plan; (b) facilitate the selection, by at least one of the user and the computer, of a plurality of asset allocations, wherein the plurality of asset allocations includes at least one of a fixed income or an equity asset; (c) determine a performance index for each asset allocation in the selected plurality of asset allocations, wherein the performance index determination is made by; i) generating one or more risk tolerance baselines based on one or more user defined risk tolerance factors; ii) simulating benefit and asset cash flows as future financial projections based on plan benefit cashflows and each asset allocation in the selected plurality of asset allocations; iii) determining if at least one risk tolerance failure occurs by comparing the future financial projections with the one or more risk tolerances; and
,iv) assigning a performance index to each of the selected plurality of asset allocations based on at least said determining step (iii); and
,(d) indicate to the user that the asset allocation with the best performance index from among the plurality of selected asset allocations is the substantially optimal asset allocation. - View Dependent Claims (2, 3, 4, 5, 6)
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7. A computer program product storing computer instructions therein for instructing a computer to determine a substantially optimal asset allocation utilizing cash flow simulation, the computer program product comprising:
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a recording medium readable by the computer; and the computer instructions stored on said recording medium instructing the computer to; permit a user to select at least one of a risk avoidance weight or a rate of return for a given financial plan; facilitate the selection, by at least one of a user and the computer, of an asset allocation for specific asset classes; generate a plurality of asset cash flow projections based on the selected asset allocation; generate a single baseline, simulation average baseline, or collection of risk tolerances based on (i) a single predefined risk tolerance factor, (ii) an average of the risk tolerance factors evolving from all the asset cash flow projections in each simulation or (iii) a separate risk tolerance factor evolving from each cash flow projection within each simulation trial; determine if a risk tolerance failure occurs by comparing the asset cash flow projection with the risk tolerances underlying the simulation; and repeat this process for at least one other asset allocation until that asset allocation generating the lowest rate of risk tolerance failure is found, thereby determining the substantially optimal asset allocation. - View Dependent Claims (8, 9)
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10. A computer program product storing computer instructions therein for instructing a computer to optimize a defined benefit retirement plan asset allocation, the computer program product comprising:
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a recording medium readable by the computer; and the computer instructions stored on said recording medium instructing the computer to substantially optimize the defined benefit retirement plan asset allocation as a mix of assets which may be expected to reduce the probability of the defined benefit retirement plan experiencing a user defined adverse circumstance as of a selected future date or within a specified period, wherein the defined benefit retirement plan is a specific year-by-year projected benefit outflow from a specific level of underlying assets, a specific employee contribution stream from an open group of current and future employees and a specific percentage of open group payroll employer contribution stream. - View Dependent Claims (11, 12, 13, 14)
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15. A computer program product storing computer instructions therein for instructing a computer to determine a substantially optimal asset allocation utilizing cash flow simulation, the computer program product comprising:
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a recording medium readable by the computer; and the computer instructions stored on said recording medium instructing the computer to; (a) receive criteria from a user, wherein the criteria includes at least one of a user selected risk avoidance weight, a user selected rate of return, or user selected plan profile information, asset information, and economic assumptions; (b) select, by at least one of a user and the computer, at least one asset allocation, wherein the at least one selected asset allocation includes specific asset classes; (c) generate, for each of the at least one selected asset allocation, multiple cash flow forecasts of (i) plan assets and (ii) one or more user-selected risk tolerances; (d) determine a weighted average measure of risk tolerance failure by examining the number of violations of the one or more user-selected risk tolerances and generate a number of favorable and unfavorable outcomes; and (e) report to the user the asset allocation having substantially optimal performance. - View Dependent Claims (16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29)
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30. A computer program product storing computer instructions therein for instructing a computer to determine a substantially optimal asset allocation utilizing cash flow simulation, the computer program product comprising:
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a recording medium readable by the computer; and the computer instructions stored on said recording medium instructing the computer to; (a) receive from a user at least one of risk avoidance weights or a rate of return including definitions of risk, for a given financial plan; (b) select, by at least one of a the user and the computer, an asset allocation for specific asset classes; (c) generate, over a designated future time frame, one or more risk tolerances including a minimum level of plan assets, maximum or minimum level of plan costs, a percentage of liabilities, and required plan earnings; (d) simulate benefit and asset cash flows as future financial projections based on the selected asset allocation and on the plan benefit cashflow projections; (e) determine by the computer a number of risk tolerance failures by comparing the simulated future financial projections with one or more risk tolerances as of selected points in time or within selected time frames; (f) generate a number of favorable and unfavorable outcomes; (g) determine a performance of the selected asset allocation; (h) select, by at least one of the user and the computer, another asset allocation for the specific asset classes; (i) simulate benefits and asset cash flows as additional future financial projections based on the newly selected asset allocation by repeating steps (d) through (g); (j) determine another performance for the newly selected asset allocation; (k) repetitively perform said steps (h), (i) and (j) until the asset allocation having the best relative performance is determined; (l) select as the substantially optimal asset allocation the asset allocation with the best performance; and (m) present the substantially optimal asset allocation to the user. - View Dependent Claims (31, 32, 33, 34, 35, 36, 37)
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38. A computer program product storing computer instructions therein for instructing a computer to determine a substantially optimal asset allocation utilizing cash flow simulation responsive to asset allocations and one or more risk tolerances based on one or more user defined risk tolerance factors, the computer program product comprising:
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a recording medium readable by the computer; and the computer instructions stored on said recording medium instructing the computer to; (a) determine when a risk tolerance failure occurs by comparing a user defined future financial projection responsive to an asset allocation selected by at least one of a user and the computer with the one or more risk tolerances; (b) determine a performance for the selected asset allocation responsive to at least the occurrence of the risk tolerance failure; (c) repeat steps (a) and (b) for at least one other selected asset allocation, thereby generating another performance of each respective asset allocation, and determine the substantially optimal asset allocation having a best performance from among the asset allocations; and (d) present the substantially optimal asset allocation to the user. - View Dependent Claims (39, 40, 41, 42, 43, 44)
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45. A computer program product storing computer instructions therein for instructing a computer to determine a substantially optimal asset allocation utilizing cash flow simulation responsive to plan information, a range of tolerable asset allocations and one or more risk tolerances based on one or more user defined risk tolerance factors, the computer program product comprising:
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a recording medium readable by the computer; and the computer instructions stored on said recording medium instructing the computer to; (a) determine the frequency of risk tolerance failures within any selected future time interval by counting the number of crossings of (i) a specified number of simulations of user defined projected assets, user defined projected costs or a user defined projection of any other evolving financial characteristics over (ii) one or more risk tolerances, where plan assets are allocated to any one of a number of asset class configurations; (b) generate for each asset allocation a weighted average failure rate frequency, wherein the frequency of failure to avoid each user selected risk tolerance factor at each user specified interval is given a user assigned weight; (c) repeat steps (a) and (b) for a sufficient number of asset allocations; and (d) presenting at least a substantially optimal asset allocation to the user. - View Dependent Claims (46, 47, 48, 49)
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50. A computer program product storing computer instructions therein for instructing a computer to perform a process for determining a substantially optimal asset allocation utilizing cash flow simulation responsive to tolerances based on one or more user defined risk tolerance factors, the program product comprising:
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a recording medium readable by the computer; and the computer instructions stored on said recording medium instructing the computer to; (a) determine when a risk tolerance failure occurs by comparing a user defined future financial projections responsive to an asset allocation with the one or more user defined risk tolerance factors; (b) determine a performance for the selected asset allocation responsive to at least the occurrence of the risk tolerance failure; (c) repeat steps (a) and (b) for at least one other selected asset allocation, thereby generating another performance of each respective asset allocation, and determining the substantially optimal asset allocation having a best performance from among the different asset allocations; and (d) displaying to the user at least the asset allocation having the best performance. - View Dependent Claims (51, 52, 53, 54, 55, 56)
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57. A method of simulating future cash flow for a given asset allocation, comprising:
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using user-selected levels for risks; measuring the frequency of failure to avoid risks; using the method to obtain the optimum performance asset allocation; and reporting the optimum performance asset allocation. - View Dependent Claims (58, 59, 60, 61)
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62. A computer program product storing computer instructions therein for instructing a computer to perform a computer-implemented and user assisted process for optimizing a defined benefit retirement plan asset allocation, the program product comprising:
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recording medium readable by the computer; and the computer instructions stored on said recording medium instructing the computer to perform the computer-implemented and user assisted process, the instructions including the steps of; excluding at least one mix of assets which may be expected to deliver a high probability of the plan experiencing a user defined adverse circumstance as of a selected future date or within a specified period; and allocating assets by at least one of a user and the computer, responsive to said exclusion of at least one mix of assets; wherein the defined benefit retirement plan is a specific year-by-year projected benefit outflow from a specific level of underlying assets, a specific employee contribution stream from an open group of current and future employees and a specific percentage of open group payroll employer contribution stream.
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Specification