Let's talk some econ/finance ****

[Egbert]

Speak of demolition.
Please continue ......

[Kuciwalker]

There is some debate in the actuarial profession over rate a pension plan should use in discounting its liabilities. As I understand it, one faction believes they should be discounted at the plan sponsor's cost of borrowing (this strikes me as total nonsense), another at the market rate for certain low-risk securities with similar duration* (this seems reasonable to me), and a third at the expected rate of return on the plan's portfolio (which is how everyone did it until Congress forced all corporate plans to use a published rate based on the yield curve for high-quality corporate debt; government and union plans still use an assumed rate of return).

The argument against the last is of course that this does not factor risk into the price; I'm not really convinced. The value of risk is subjective. Moreover, approaching this question from a non-financial perspective seems to justify it reasonably well. I would say that the purpose of discounting the liabilities is to answer the question "how much money do I need to contribute to this fund so that it is expected to be able to cover all of the benefits it will pay out". Further sophistication would involve instead asking a question like "how much money do I need to put in now to reduce the chance that I'll need to make additional later below X%", which would still use the expected returns, volatility, etc. of the fund's portfolio.

*AFAIK the actual market for deferred annuities doesn't really exist, or at least isn't large enough to be useful for this purpose

edit: my concern is not with the proper discount rate to used for accounting purposes, but for funding purposes

[Kuciwalker]

btw, It's possible that the first faction I mentioned above doesn't actually exist and is just my bastardized misreading of people from the second.

[Hauldren Collider]

I think BlackCat and Braindead don't know what risk-neutral means, though I can guess at what they think it means. I'm not totally sure what it means myself however. Could someone define it?

[Kuciwalker]

The future is a random variable with some distribution X. The risk-neutral measure is, roughly, a probability distribution X* such that, if the future were distributed according to X*, the current price of all assets would be equal to the expected future cash flows discounted at the risk-free rate of return.

[Egbert]

I think BlackCat and Braindead don't know what risk-neutral means, though I can guess at what they think it means. I'm not totally sure what it means myself however. Could someone define it?

Context is the key old chap. Reread the above in the context that I think KC is deranged and you will see that "risk-neutral" is quite irrelevant to my remark. The point is whether he inhabits a fantasy world or a real world. Does that help?

[Kuciwalker]

You're an idiot. Go away.

[SlowwHand]

Nerds @ a Nerd Convention

[Asher]

Future Marines, right there. Most of them would get through OCS first try, also.

[SlowwHand]

I was Air Force and you'll get no argument from me.

[Aeson]

I think BlackCat and Braindead don't know what risk-neutral means, though I can guess at what they think it means. I'm not totally sure what it means myself however. Could someone define it?

When you're talking about risk, neutral means those territories which aren't in the control of any player. It's perfectly reasonable to mock people who's entire risk world is neutral because a) it means they are boring people without enough friends to properly fill out a risk game and b) they somehow managed to lose to a non-player which can't attack.

[Lorizael]

When you're talking about risk, neutral means those territories which aren't in the control of any player. It's perfectly reasonable to mock people who's entire risk world is neutral because a) it means they are boring people without enough friends to properly fill out a risk game and b) they somehow managed to lose to a non-player which can't attack.

(Back into hiding I go.)

[BlackCat]

I love it when the hollow shells of people I've completely demolished follow me around for months/years and post their sad little responses. It reminds others "there but for the grace of God go I"...

Quite funny considering it's you that are running away and secretly stalking me - I'm on your ignore list but still you read my postings

[KrazyHorse]

You haven't been on my ignore list in months, you twit. I put people on time outs, not permanent suspension.

[Egbert]

I love it when the hollow shells of people I've completely demolished follow me around for months/years and post their sad little responses. It reminds others "there but for the grace of God go I"...

I presume your definition of "demolish" is to spend pages debating whether or not you are a loon who picks "soft targets" for cyber-bullying and then runs away when you are given a taste of your own medicine. You are a pathetic creature. You are welcome to try to "demolish" me at any time because I would enjoy watching you make a fool of yourself again.

You are completely delusional if you think anyone thinks "there but for the grace of God go I". Get out of your little hate filled fantasy world.