Extra Info from Moshe Milevsky about ER..........

[bongo2]

Independent and FinanceDude: look at page 58 from ats5g's linked write-up (the "Caveats and Warnings for the Quants"). There he says he assumes ". . .the uncertain length of human life being exponentially distributed. This implies that the mortality rate is constant over time. . ." Milvesky does say "the results are remarkably accurate when compared against the true ruin probability under the complete mortality rates," but that was not what I found when I tested this.

One thing in this section that I've never noticed before in other write-ups is this comment: "equation 1 is an approximation based on moment matching techniques. . .errors are less than 5%." If you're trying to estimate a 5% failure rate this formula looks a lot less useful.

 

[Independent]

Independent and FinanceDude: look at page 58 from ats5g's linked write-up (the "Caveats and Warnings for the Quants"). There he says he assumes ". . .the uncertain length of human life being exponentially distributed. This implies that the mortality rate is constant over time. . ." Milvesky does say "the results are remarkably accurate when compared against the true ruin probability under the complete mortality rates," but that was not what I found when I tested this.

One thing in this section that I've never noticed before in other write-ups is this comment: "equation 1 is an approximation based on moment matching techniques. . .errors are less than 5%." If you're trying to estimate a 5% failure rate this formula looks a lot less useful.

It looks like I was wrong. I'm sure that actuaries will "recoil in horror". Intuitively, it seems that your earlier post is correct - the lower the age, the greater the error (even if you use a life expectancy that reflects the age).

I read Milvesky's book "The Calculus of Retirement Income" a little while ago. I "read" the book in the sense that I read most of the text but I didn't try to verify all the formulas.
I'm sure he discussed various models of mortality, and I thought he was settling in on an exponential force of mortality. I must have been too ready to skip the hard stuff.

 

[bongo2]

I read most of the text but I didn't try to verify all the formulas.

Tell me about it! This is more than a little embarrassing for me since I'm supposed to know this stuff, and presumably even a quick check on the proof would have shown it to be an approximation.

 

[Nords]

Well, best to have a COLA pension!
Ha

No need for snide comments-- you want a COLA annuity/pension then go buy your own through Vanguard or some other fine financial institution.

 

[haha]

No need for snide comments-- you want a COLA annuity/pension then go buy your own through Vanguard or some other fine financial institution.

Nordsie, where you been? I've been missing your thin skin.

 

[Nords]

Well, best to have a COLA pension!
Ha

Nordsie, where you been? I've been missing your thin skin.

You're right, Ha, we both have better things to do than slinging thinly-veiled attacks and pejorative diminutives at each other.

You have a nice life now.