Practical Application of “Do Jumps Matter in the Long Term? A Tale of Two Horizons”




In this essay, we consider an additional application. Using the utility framework described by Warren (2019), we
examine the impact of using one of BB’s fitted jump-diffusion models on a pension plan sponsor’s long-term asset
allocation decision. We want to compare asset allocation results to those using the standard finance workhorse
model of a geometric Brownian motion (i.e., lognormal return generating process or LN hereafter).


Jean-François Bégin, PhD, FSA, FCIA
Mathieu Boudreault, PhD, FSA, FCIA
David R. Cantor, CFA, FRM, ASA
Kailan Shang, FSA, ACIA, CFA, PRM

Publication Date: September 2021

Publication Site: Society of Actuaries