Stochastic modelling in wealth management: did we spot a black swan?
This report considers the performance of the Barrie & Hibbert stochastic model from the end of 2007, through the period of equity market turmoil during late-2008. We provide results which demonstrate that the model had indeed assigned a reasonable probability weight to the events of 2008. In addition, we show that the ‘extreme’ events of 2008 had very limited impact on the assumptions within our model, and the associated distribution of asset return outcomes. This suggests that an advisor or wealth manager who had relied on a Barrie & Hibbert stochastic projection immediately before this period of equity market turmoil would have been strongly placed to justify financial planning decisions which had been based on the outputs from the model.
