Individual Household Financial Planning

Transcription

1 Individual Household Financial Planning Igor Osmolovskiy Cambridge Systems Associates Co- workers: Michael Dempster, Elena Medova, Philipp Ustinov

2 2 ialm helps households to ialm individual Asset Liability Management software for financial advice objectively estimate financial possibilities over their life span plan their finances for years to come optimize savings accumulation consider individual household specific wishes and features Theoretical basis is Dynamic Stochastic Programming

3 3 A couple 43 and 40 years old A Typical Household with an 8 year old child total annual income 120,000 50,000 of savings 6- year university fees in 10 years 15- year remaining mortgage each retiring at 65 and purchasing a chalet

4 4 GOAL SPENDING opt SAVINGS opt INVESTMENTS opt

5 5 ialm is an Intelligent Robo Advisor 1. Goal- oriented investment advice and the ability to assess many different household choices on the its financial wealth 2. Optimal dynamic asset allocation generates an additional return in order of 0.5-1% per annum for a typical middle- class household 3. Retirement saving options and valuation of impact of the existing pension schemes on household s financial wealth

6 6 Main Features for Comparison Holistic0optimization: goals,0taxes,0transaction0costs0etc every0goal0influences0decisions0on0all0other0goals Future0dynamic0portfolio0allocation Advice0on0how0much0to0save Takes0into0account0dynamics0of0portfolio0&0risk0tolerance Takes0into0account0longevity0risk Takes0into0account0various0goals0like0children's0education RoboAdvisor i ALM

7 7 HPC Finance Project Initial Capital Gap is the extra capital required by an inferior strategy to yield the same lifetime utility as the superior strategy This measure was introduced in the paper published as M A H Dempster, Dwayne Kloppers, Elena Medova, Igor Osmolovskiy & Philipp Ustinov (2016). Lifecycle goal achievement of portfolio volatility reduction? Journal of Portfolio Management New parallel solver was implemented in collaboration with IBM that increased the solving speed

8 Why Does High Performance Computing count? This underlying ialm mathematical model leads to a large Linear Programme { π : = min c x + p ( ω ) c ( ω ) x ( ω ) + p ( ω ) c ( ω ) x ( ω )] x ω Ω ω Ω T T T... + p ( ω ) c ( ω ) x ( ω ) s.t. A x = T T ( ω ) ( ω ) 2 ( ω b2 ω ω ω 2 ω + 33 ω 3 ω = 3 ω A x A x ω Ω T T 2 T T T T1 1 T 2 2 TT T T T T T ) = ( ) a.s. A ( ) x A ( ) x ( ) A ( ) x ( ) b ( ) a.s. : :... : A ( ω ) x + A ( ω ) x ( ω ) A ( ω ) x ( ω ) = b ( ω ) a.s. } b l 1 x u 1 1 t l x (ω ) u t t t t t ω Ω t = 1,..., T Matrix size increases exponentially with the number of time stages and linearly with the number of scenarios. Currently in ialm Simultaneous linear equation constraints in 2 million variables.

9 9 New Parallel Solver Implementation CPU-time- (sec)

10 10 Some Speed Test Results UK-2013 profile CPLEX-version Average-secs 12.6.XX/ / ,%32bit Profile% ,%64bit ,%64bit ,%32bit Profile% ,%64bit ,%64bit ,%32bit Profile% ,%64bit ,%64bit ,%32bit Profile% ,%64bit ,%64bit

11 11 ialm for Retirement Planning April 2016 new pension reforms come into an effect in UK New possibilities are introduced, e.g. the right to access your DC pot after 55 As a consequence new optimal strategies can be developed

12 ialm Client s Input- Output 12 Client- server application (integratable with mobile and online platforms) Input data household structure (parents, children, dependents...) income structure (salary, securities income, rent...) spending structure (tenancy, education, food...) loans (mortgages, personal loans...) etc. (any important client information) Aggregated result spending optimization savings maximization retirement planning optimal investment recommendations

13 13 Demonstration