[Returnanalytics-commits] r3901 - pkg/Dowd/R

[noreply at r-forge.r-project.org]

Author: dacharya
Date: 2015-08-03 22:13:56 +0200 (Mon, 03 Aug 2015)
New Revision: 3901

Added:
   pkg/Dowd/R/DCPensionVaR.R
Log:
Function DCPensionVaR added.

Added: pkg/Dowd/R/DCPensionVaR.R
===================================================================
--- pkg/Dowd/R/DCPensionVaR.R	                        (rev 0)
+++ pkg/Dowd/R/DCPensionVaR.R	2015-08-03 20:13:56 UTC (rev 3901)
@@ -0,0 +1,81 @@
+#' Monte Carlo VaR for DC pension
+#' 
+#' Generates Monte Carlo VaR for DC pension in Chapter 6.7.
+#' 
+#' @param mu Expected rate of return on pension-fund assets
+#' @param sigma Volatility of rate of return of pension-fund assets
+#' @param p Probability of unemployment in any period
+#' @param life.expectancy Life expectancy 
+#' @param number.trials Number of trials
+#' @param cl VaR confidence level
+#' @return VaR for DC pension
+#' @references Dowd, Kevin. Measuring Market Risk, Wiley, 2007.
+#' 
+#' @author Dinesh Acharya
+#' @examples
+#' 
+#'    # Estimates the price of an American Put
+#'    DCPensionVaR(.06, .2, .05, 80, 100, .95)
+#'    
+#' @export
+DCPensionVaR <- function(mu, sigma, p, life.expectancy, number.trials, cl){
+  # Parameter Setting
+  contribution.rate <- .15
+  initial.income <- 25
+  income.growth.rate <- .02
+  M <- number.trials
+  L <- life.expectancy
+  # r is return on investment
+  # Asset Side
+  # Initialization
+  r <- matrix(0, 40, M)
+  fund <- matrix(0, 40, M)
+  employment.state <- matrix(0, 40, M)
+  actual.income <- matrix(0, 40, M)
+  contribution <- matrix(0, 40, M)
+  years.contributed <- matrix(0, 40, M)
+  terminal.fund <- double(M)
+  terminal.return <- double(M)
+  years.contributed <- matrix(0, 40, M)
+  employment.income <-  matrix(0, 40, M)
+  total.years.contributed <- double(M)
+  annuity.rate <- double(M)
+  pension <- double(M)
+  pension.ratio <- double(M)
+  for (j in 1:M) {
+    fund[1, j] <- contribution.rate * initial.income
+    years.contributed[1, j] <- 1
+    for (i in 2:40) {
+      r[i, j] <- rnorm(1, mu, sigma)
+      employment.state[i, j] <- rbinom(1,1,1-p)
+      employment.income[i, j] <-  initial.income * exp(income.growth.rate*(i-1))
+      actual.income[i, j] <- employment.state[i, j] * employment.income[i, j]
+      contribution[i, j] <- contribution.rate * actual.income[i, j]
+      fund[i, j] <- contribution[i, j] + fund[i - 1, j] * (1 + r[i, j])
+      terminal.fund[j] <- fund[i, j]
+      terminal.return[j] <- r[i, j]
+      annuity.rate[j] <- .04
+      pension[j] <- payper(annuity.rate[j], L - 65, terminal.fund[j])
+      terminal.employment.income <- (1 - p) * initial.income * exp(income.growth.rate * 39)
+      pension.ratio[j] <- pension[j]/terminal.employment.income
+    }
+  }
+  mean.terminal.fund <- mean(terminal.fund)
+  std.terminal.fund <- sd(terminal.fund)
+  # Histogram
+  hist(pension.ratio, 20)
+  # VaR
+  VaR <- -HSVaR(pension.ratio, cl)
+  return(VaR)
+}
+
+# Access Function
+payper <- function(r, n, p){
+  # Computes payment per period for annuity or loans
+  # parameters:
+  # r interest rate per period
+  # n number of periods
+  # p present value of the instrument
+  payment <- (p * r) / (1-(1/(1+r)^n))
+  return(payment)
+}
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