Horizon helps students address investment portfolio decisions relating to shortfall risk

The Long Horizon Return Simulator (“Horizon”) allows students to simulate long-horizon returns based on historical monthly return distributions for various asset classes. The goal of Horizon is to help students address investment portfolio decisions relating to shortfall risk and asset allocation across asset classes.

In Horizon, students set various portfolio parameters such as asset allocation, required return, horizon, and time period. The application then uses a random sampling algorithm on historical asset class returns to create a detailed histogram. This frequency distribution reveals the probability that the required return would be met with those allocations during the selected historical time period.

Monthly returns for standard asset classes dating back to 1926 are available for a basic portfolio, but Horizon can also access portfolios designed in the Learning Lab “Backtester” application. Using Backtest’s precisely defined portfolios as asset classes, students can test far more specific and sophisticated scenarios than would be possible with generic asset classes alone.

Results are easily downloaded to spreadsheet format for further analysis, and PDF documents may be submitted where written answers are required for an assignment. All of these functions generate a learning tool that is convenient to use while still demonstrating complex financial concepts.