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Building A Better Mousetrap: Enhanced Dollar Cost Averaging, Lee Dunham, Geoffrey C. Friesen
Building A Better Mousetrap: Enhanced Dollar Cost Averaging, Lee Dunham, Geoffrey C. Friesen
Department of Finance: Faculty Publications
This paper presents a simple, intuitive investment strategy that improves upon the popular dollarcost- averaging (DCA) approach. The investment strategy, which we call enhanced dollar-costaveraging (EDCA), is a simple, rule-based strategy that retains most of the attributes of traditional DCA that are appealing to most investors but yet adjusts to new information, which traditional DCA does not. Simulation results show that the EDCA strategy reliably outperforms the DCA strategy in terms of higher dollar-weighted returns about 90% of the time and nearly always delivers greater terminal wealth for reasonable values of the risk premium. EDCA is most effective when applied …
Using Monte Carlo Simulations To Establish A New House Price Stress Test, James R. Follain, Seth H. Giertz
Using Monte Carlo Simulations To Establish A New House Price Stress Test, James R. Follain, Seth H. Giertz
Department of Economics: Faculty Publications
The focus of this paper is on the house price stress test (termed ALMO) that was designed to assess the fiscal strength of Fannie Mae and Freddie Mac and, if necessary, to trigger remedial action in order to avert a crisis. We assess whether the ALMO stress test was an adequate representation of an extremely weak housing market, given the best available information leading up to the Great Recession. A Monte Carlo simulation model is developed to estimate the severity of low probability events (i.e., severe house price declines). We illustrate the complexity and subjective nature of the process used …