Hazard Rate

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charly_blue

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On page 281 of Schweser book 1, Figure 2, there is a hazard rate column.
Would any of you know what the 2.96% hazard rate refers to?
Why is it different when retirement age is 55 then when it is 60?
 
The book doesn’t even describe it. All I know is that it goes up when age goes up, could be linked to longevity risk.
 
Look it up in CFAI text. It is explained pretty well in the reading on Estate Taxes. Hazard rate is probability of ruin.
 
onelasttime Wrote:
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> Look it up in CFAI text. It is explained pretty
> well in the reading on Estate Taxes. Hazard rate
> is probability of ruin.
Thanks, looks like it’s also called rate of ruin. Pretty sneaky.
 
hazard rate = ln(2) /(median year at death - retirement age)
Not sth you need to worry about for the exa
 
Explained at the bottom of page 231 as Probability of ruin and then there is a chart on page 232 and some discussion on page 233
I won’t worry too much about the formula above.
 
onelasttime Wrote:
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> Explained at the bottom of page 231 as Probability
> of ruin and then there is a chart on page 232 and
> some discussion on page 233
>
Don’t have this year’s book, but hazard rate is NOT probability of ruin. Hazard rate is used to calculate the probability of ruin. As I mention, hazard rate = ln(2) /(median year at death - retirement age). You can check this formula with the numbers mentioned/calculated in exhibit 3 (I assume that the reading is not changed from last year).
E.g., hazard rate = 3.67 = ln(2)/(83.9-65) on the fourth row.
This hazard rate is then used to calculate ruin probability at different real spending rates.
As I mentioned earlier, don’t worry about this hazard rate.
> I won’t worry too much about the formula above.
 
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