The WealthCaster™ Risk Modeling System: A Technical Description

WealthCaster [WC] is a risk modeling system that illustrates the financial consequences of various
portfolio design and asset management elections. It is designed for both trust-owned and individual
portfolios; but can be generalized to reflect other asset management environments (e.g., endowments and
foundations). In addition to facilitating asset allocation decisions—the user may select up to 29 asset
classes to use as portfolio building blocks— it explores a variety of intelligent agent behaviors
surrounding portfolio management. These include:

  1. Distribution elections;
  2. Asset Management Strategies—Buy & Hold, Constant Mix, Floor + Multiplier;
  3. Tax apportionment and tax management options;
  4. Impact of investment fees and expenses;
  5. Active v. Passive investment management elections;
  6. Modeling costs and benefits of life insurance and annuity contracts;
  7. Consequences of diversification vs. asset concentration;
  8. Portfolio Monitoring and Surveillance policies under multiple risk metrics

For those familiar with the CFA designation, the WC application operationalizes the Level III portfolio
design and management curriculum.

One of WealthCaster’s most important goals is to establish a set of portfolio-choice or “preferencing”
criteria. Portfolio A might be preferred to portfolio B based on dollar-wealth metric, utility metric
across the entire distribution, differing orders of stochastic dominance, failure criteria (downside risk
metrics), and so forth. Although the topics of portfolio theory and asset management strategies are
complex, WC facilitates prudent decision making by investors who may lack a strong background in
financial economics.

Read On

Leave a Reply

  • (will not be published)

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>