My Finance

From the same web site Novel Investor, we included total nominal annual returns of emerging markets stocks (MSCI EM index). They are available only from 1988, as opposed to developed markets from 1970. So I added emerging markets to the portfolio in the following way: Starting from 1988, we have 60% Developed and 40% Emerging portfolio of international stocks. I fitted the econometrics model using the new data, and rewrote the simulator.

The model fits well, judging by the innovations for the regression for international stock returns. However, simulator runs show that returns have considerably increased. This is due to historical data: Returns of emerging markets were much higher than of developed markets during 1988-2024, although some years were an exception.

Regression coefficients in the model for international stock returns have changed:

with and and

The updated code is available in the same GitHub/asarantsev repository simulator-current. It has version 10.

I also made the following changes, per discussion with a colleague:

• Removed the simplified version of the financial simulator, with pre-specified portfolios and withdrawals
• Changed from 5 percentiles 10%, 30%, 50%, 70%, 90% to 3 percentiles 20%, 50%, 80%
• Included average ruin time over all paths in ruin, and the ruin time for each chosen percentile path in ruin