Asset liability modelling and pension schemes: the application of robust optimization to USS

This paper uses a novel numerical optimization technique - robust optimization - that is well suited to solving the asset-liability management (ALM) problem for pension schemes. It requires the estimation of fewer stochastic parameters, reduces estimation risk and adopts a prudent approach to asset allocation. This study is the first to apply it to a real-world pension scheme, and the first ALM model of a pension scheme to maximise the Sharpe ratio. We disaggregate pension liabilities into three components - active members, deferred members and pensioners, and transform the optimal asset allocation into the scheme’s projected contribution rate. The robust optimization model is extended to include liabilities and used to derive optimal investment policies for the Universities Superannuation Scheme (USS), benchmarked against the Sharpe and Tint, Bayes-Stein, and Black-Litterman models as well as the actual USS investment decisions. Over a 144 month out-of-sample period robust optimization is superior to the four benchmarks across 20 performance criteria, and has a remarkably stable asset allocation – essentially fix-mix. These conclusions are supported by six robustness checks.

The blended approach to real estate allocations: performance implications of combining an exposure to German Spezialfonds with Global Listed Real Estate Securities

This paper seeks to increase the understanding of the performance implications for investors who choose to combine an unlisted real estate portfolio (in this case German Spezialfonds) with a (global) listed real estate element. We call this a “blended” approach to real estate allocations. For the avoidance of doubt, in this paper we are dealing purely with real estate equity (listed and unlisted) allocations, and do not incorporate real estate debt (listed or unlisted) or direct property into the process. A previous paper (Moss and Farrelly 2014) showed the benefits of the blended approach as it applied to UK Defined Contribution Pension Schemes. The catalyst for this paper has been the recent attention focused on German pension fund allocations, which have a relatively low (real estate) equity content, and a high bond content. We have used the MSCI Spezialfonds Index as a proxy for domestic German institutional real estate allocations, and the EPRA Global Developed Index as a proxy for a global listed real estate allocation. We also examine whether a rules based trading strategy, in this case Trend Following, can improve the risk adjusted returns above those of a simple buy and hold strategy for our sample period 2004-2015. Our findings are that by blending a 30% global listed portfolio with a 70% allocation (as opposed to a typical 100% weighting) to Spezialfonds, the real estate allocation returns increase from 2.88% p.a. to 5.42% pa. Volatility increases, but only to 6.53%., but there is a noticeable impact on maximum drawdown which increases to 19.4%. By using a Trend Following strategy raw returns are improved from 2.88% to 6.94% p.a. , The Sharpe Ratio increases from 1.05 to 1.49 and the Maximum Drawdown ratio is now only 1.83% compared to 19.4% using a buy and hold strategy . Finally, adding this (9%) real estate allocation to a mixed asset portfolio allocation typical for German pension funds there is an improvement in both the raw return (from 7.66% to 8.28%) and the Sharpe Ratio (from 0.91 to 0.98).

Land/sea warming ratio in response to climate change: IPCC AR4 model results and comparison with observations

Climate model simulations consistently show that in response to greenhouse gas forcing surface temperatures over land increase more rapidly than over sea. The enhanced warming over land is not simply a transient effect, since it is also present in equilibrium conditions. We examine 20 models from the IPCC AR4 database. The global land/sea warming ratio varies in the range 1.36–1.84, independent of global mean temperature change. In the presence of increasing radiative forcing, the warming ratio for a single model is fairly constant in time, implying that the land/sea temperature difference increases with time. The warming ratio varies with latitude, with a minimum in equatorial latitudes, and maxima in the subtropics. A simple explanation for these findings is provided, and comparisons are made with observations. For the low-latitude (40°S–40°N) mean, the models suggest a warming ratio of 1.51 ± 0.13, while recent observations suggest a ratio of 1.54 ± 0.09.

On logarithmic ratio quantities and their units

The use of special units for logarithmic ratio quantities is reviewed. The neper is used with a natural logarithm (logarithm to the base e) to express the logarithm of the amplitude ratio of two pure sinusoidal signals, particularly in the context of linear systems where it is desired to represent the gain or loss in amplitude of a single-frequency signal between the input and output. The bel, and its more commonly used submultiple, the decibel, are used with a decadic logarithm (logarithm to the base 10) to measure the ratio of two power-like quantities, such as a mean square signal or a mean square sound pressure in acoustics. Thus two distinctly different quantities are involved. In this review we define the quantities first, without reference to the units, as is standard practice in any system of quantities and units. We show that two different definitions of the quantity power level, or logarithmic power ratio, are possible. We show that this leads to two different interpretations for the meaning and numerical values of the units bel and decibel. We review the question of which of these alternative definitions is actually used, or is used by implication, by workers in the field. Finally, we discuss the relative advantages of the alternative definitions.

Determination of the vibrational transition moment ratio for the Coriolis interacting v9 and v10 fundamentals of allene

Comparison between observed and calculated infrared band contours has been made to determine the vibrational transition moment ratio |M10/M9| for the Coriolis interacting ν9 and ν10 perpendicular fundamentals of allene-h4. The ratio obtained is appreciably lower than that of a previous estimate and the result obtained by integrated band intensity measurements of Overend and Crawford. From the best estimate of the ratio, the dipole moment derivatives of the two bands are determined; the value for the weaker band ν9 is subject to a large uncertainty.

The effect of ram replacement and sex ratio on the sexual response of anoestrous ewes

It is accepted that an important source of variation in the response of anoestrous ewes, to the introduction of rams, is the intensity of male stimulation. The aim of this study was to investigate strategies capable of increasing the impact and transmission of the ram stimuli. In Experiment 1, two groups of seven ewes (Bluefaced Leicester male x Swaledale female) were individually penned with one ram and for the next 6 h the rams either remained in the pen or were replaced hourly. Blood samples revealed no difference in the pattern of plasma LH secretion. In Experiment 2, three groups of 16 ewes were either introduced to one ram, individually (H) or in groups of 8 (L), or remained isolated. Ram introduction increased the plasma LH pulsatility (P < 0.001). H ewes displayed more (nine versus six) male-induced LH pulses (pulses occurring within the first 45 min) and more pulses per 8 h intervals than the L group of ewes (1.9 +/- 0.3 versus 1.3 +/- 0.3), but these differences were not significant. It was concluded that (i) frequent replacement of rams within a few hours following ram introduction to ewes does not further improve the response of ewes, especially if the ram:ewe ratio is high; (ii) the characterization of the plasma LH secretion parameters during a period of 6-8 h does not seem to be an effective method to detect small differences in the intensity of stimulation received by the ewes when exposed to rams; (iii) North Country Mule ewes (Bluefaced Leicester male x Swaledale female) in the UK respond to the presence of rams in spring (late oestrous/early anoestrous season) with an elevation in plasma LH secretion. (c) 2005 Elsevier B.V. All rights reserved.

A likelihood ratio appropach to family-based association studies with covariates

We introduce a procedure for association based analysis of nuclear families that allows for dichotomous and more general measurements of phenotype and inclusion of covariate information. Standard generalized linear models are used to relate phenotype and its predictors. Our test procedure, based on the likelihood ratio, unifies the estimation of all parameters through the likelihood itself and yields maximum likelihood estimates of the genetic relative risk and interaction parameters. Our method has advantages in modelling the covariate and gene-covariate interaction terms over recently proposed conditional score tests that include covariate information via a two-stage modelling approach. We apply our method in a study of human systemic lupus erythematosus and the C-reactive protein that includes sex as a covariate.

Effects of a sex-ratio distorting endosymbiont on mtDNA variation in a global insect pest

Background: Patterns of mtDNA variation within a species reflect long-term population structure, but may also be influenced by maternally inherited endosymbionts, such as Wolbachia. These bacteria often alter host reproductive biology and can drive particular mtDNA haplotypes through populations. We investigated the impacts of Wolbachia infection and geography on mtDNA variation in the diamondback moth, a major global pest whose geographic distribution reflects both natural processes and transport via human agricultural activities. Results: The mtDNA phylogeny of 95 individuals sampled from 10 countries on four continents revealed two major clades. One contained only Wolbachia-infected individuals from Malaysia and Kenya, while the other contained only uninfected individuals, from all countries including Malaysia and Kenya. Within the uninfected group was a further clade containing all individuals from Australasia and displaying very limited sequence variation. In contrast, a biparental nuclear gene phylogeny did not have infected and uninfected clades, supporting the notion that maternally-inherited Wolbachia are responsible for the mtDNA pattern. Only about 5% (15/306) of our global sample of individuals was infected with the plutWBI isolate and even within infected local populations, many insects were uninfected. Comparisons of infected and uninfected isofemale lines revealed that plutWBI is associated with sex ratio distortion. Uninfected lines have a 1:1 sex ratio, while infected ones show a 2:1 female bias. Conclusion: The main correlate of mtDNA variation in P. xylostella is presence or absence of the plutWBI infection. This is associated with substantial sex ratio distortion and the underlying mechanisms deserve further study. In contrast, geographic origin is a poor predictor of moth mtDNA sequences, reflecting human activity in moving the insects around the globe. The exception is a clade of Australasian individuals, which may reflect a bottleneck during their recent introduction to this region.

Active-control trials with binary data: a comparison of methods for testing superiority or non-inferiority using the odds ratio

This paper considers methods for testing for superiority or non-inferiority in active-control trials with binary data, when the relative treatment effect is expressed as an odds ratio. Three asymptotic tests for the log-odds ratio based on the unconditional binary likelihood are presented, namely the likelihood ratio, Wald and score tests. All three tests can be implemented straightforwardly in standard statistical software packages, as can the corresponding confidence intervals. Simulations indicate that the three alternatives are similar in terms of the Type I error, with values close to the nominal level. However, when the non-inferiority margin becomes large, the score test slightly exceeds the nominal level. In general, the highest power is obtained from the score test, although all three tests are similar and the observed differences in power are not of practical importance. Copyright (C) 2007 John Wiley & Sons, Ltd.

Exposing the myth of the 1:5:200 ratio relating initial cost, maintenance and staffing costs of office buildings

In an attempt to focus clients' minds on the importance of considering the construction and maintenance costs of a commercial office building (both as a factor in staff productivity and as a fraction of lifetime staff costs) there is an often-quoted ratio of costs of 1:5:200, where for every one pound spent on construction cost, five are spent on maintenance and building operating costs and 200 on staffing and business operating costs. This seems to stem from a paper published by the Royal Academy of Engineering, in which no data is given and no derivation or defence of the ratio appears. The accompanying belief that higher quality design and construction increases staff productivity, and simultaneously reduces maintenance costs, how ever laudable, appears unsupported by research, and carries all the hallmarks of an "urban myth". In tracking down data about real buildings, a more realistic ratio appears to depend on a huge variety of variables, as well as the definition of the number of "lifetime" years. The ill-defined origins of the original ratio (1:5:200) describing these variables have made replication impossible. However, by using published sources of data, we have found that for three office buildings, a more realistic ratio is 1:0.4:12. As there is nothing in the public domain about what comprised the original research that gave rise to 1:5:200, it is not possible to make a true comparison between these new calculations and the originals. Clients and construction professionals stand to be misled because the popularity and widespread use of the wrong ratio appears to be mis-informing important investment and policy decisions.

UK Food Standards Agency workshop report: the effects of the dietary n-6 : n-3 fatty acid ratio on cardiovascular health

This report summarises a workshop convened by the UK Food Standards Agency (FSA) on 11 September 2006 to review the results of three FSA-funded studies and other recent research on effects of the dietary n-6:n-3 fatty acid ratio on cardiovascular health. The objective of this workshop was to reach a clear conclusion on whether or not it was worth funding any further research in this area. On the basis of this review of the experimental evidence and on theoretical grounds, it was concluded that the n-6:n-3 fatty acid ratio is not a useful concept and that it distracts attention away from increasing absolute intakes of long-chain n-3 fatty acids which have been shown to have beneficial effects on cardiovascular health. Other markers of fatty acid intake, that more closely relate to physiological function, may be more useful.

Lack of effect of dietary n-6 : n-3 PUFA ratio on plasma lipids and markers of insulin responses in Indian Asians living in the UK

Background: Indian Asians living in Western Countries have an over 50% increased risk of coronary heart disease (CHD) relative to their Caucasians counterparts. The atherogenic lipoprotein phenotype (ALP), which is more prevalent in this ethnic group, may in part explain the increased risk. A low dietary long chain n-3 fatty acid (LC n-3 PUFA) intake and a high dietary n-6 PUFA intake and n-6:n-3 PUFA ratio in Indian Asians have been proposed as contributors to the increased ALP incidence and CHD risk in this subgroup. Aim: To examine the impact of dietary n-6:n-3 PUFA ratio on membrane fatty acid composition, blood lipid levels and markers of insulin sensitivity in Indian Asians living in the UK. Methods: Twenty-nine males were assigned to either a moderate or high n-6:n-3 PUFA (9 or 16) diet for 6 weeks. Fasting blood samples were collected at baseline and 6 weeks for analysis of triglycerides, total-, LDL- and HDL- cholesterol, non-esterified fatty acids, glucose, insulin, markers of insulin sensitivity and C-reactive protein. Results: Group mean saturated fatty acid, MUFA, n-6 PUFA and n-3 PUFA on the moderate and high n-6:n-3 PUFA diets were 26 g/d, 43 g/d, 15 g/d, 2 g/d and 25 g/d, 25 g/d, 28 g/d, 2 g/d respectively. A significantly lower total membrane n-3 PUFA and a trend towards lower EPA and DHA levels were observed following the high n-6:n-3 PUFA diet. However no significant effect of treatment on plasma lipids was evident. There was a trend towards a loss of insulin sensitivity on the high n-6:n-3 PUFA diet, with the increase in fasting insulin (P = 0.04) and HOMA IR [(insulin x glucose)/22.5] (P = 0.02) reaching significance. Conclusion: The results of the current study suggest that, within the context of a western diet, it is unlikely that dietary n-6:n-3 PUFA ratio has any major impact on the levels of LC n-3 PUFA in membrane phospholipids or have any major clinically relevant impact on insulin sensitivity and its associated dyslipidaemia.

Effects of variation in the palm stearin: palm olein ratio on the crystallisation of a low-trans shortening

Changes in the theological properties during crystallisation and in the crystal size and morphology of blends containing rapeseed oil with varying percentages of palm stearin (POs) and palm olein (POf) have been studied. The crystals formed from all three blends were studied by confocal laser scanning microscopy, light microscopy and environmental scanning electron microscopy, which revealed the development of clusters of 3-5 individual elementary "spherulites" in the early stages of crystallisation. The saturated triacylglycerol content of the solid crystals separated at the onset of crystallisation was much greater than that in the total fat. Fat blends with a higher content of palm stearin had a more rapid nucleation rate when observed by light microscopy, and this caused an earlier change in the rheological properties of the fat during crystallisation. Using a low torque amplitude (0.005 Pa, which was within the linear viscoelastic region of all samples studied) and a frequency of 1 Hz, the viscoelastic properties of melted fat during cooling were studied. All samples, prior to crystallisation, showed weak viscoelastic liquid behaviour (G '', loss modulus >G', storage modulus). After crystallisation a more "solid like" behaviour was observed (G' similar to or greater than G ''). The blend having the highest concentration of POs was found to have the earliest onset of crystallisation (27% w/w POs; 12 mins, 22% w/w POs; 13.5 mins, 17% w/w POs, 15 mins, respectively). However, there were no significant differences in the time to the point when G' became greater than G' among the three blends. (c) 2006 Elsevier Ltd. All rights reserved.

Kernel classifier construction using orthogonal forward selection and boosting with Fisher ratio class separability measure

A greedy technique is proposed to construct parsimonious kernel classifiers using the orthogonal forward selection method and boosting based on Fisher ratio for class separability measure. Unlike most kernel classification methods, which restrict kernel means to the training input data and use a fixed common variance for all the kernel terms, the proposed technique can tune both the mean vector and diagonal covariance matrix of individual kernel by incrementally maximizing Fisher ratio for class separability measure. An efficient weighted optimization method is developed based on boosting to append kernels one by one in an orthogonal forward selection procedure. Experimental results obtained using this construction technique demonstrate that it offers a viable alternative to the existing state-of-the-art kernel modeling methods for constructing sparse Gaussian radial basis function network classifiers. that generalize well.