You define one or more portfolio mixes for the stochastic forecast using the Asset Mixes spreadsheet.

The asset classes shown in the columns of the spreadsheet come from the selected Capital Market Simulation. You can use the Efficient Frontier... button to populate mixes from a previously run efficient frontier and/or directly enter the mixes by providing a Description and specifying a fraction for each asset class. The fraction can be any number between -9 and 9 (inclusive) to allow for leveraging, if desired. The last column in the spreadsheet shows the Total allocation for the mix, which must be 1 (i.e. 100%). Mix #s are automatically assigned and numbered consecutively. These Mix numbers are mainly used with the Dynamic asset allocation features described below. Click the Sort by expected return button to rearrange the mixes so that they are in ascending expected return order. Reordering gives some meaning to the mix number in that lower mix numbers tend to be more conservative than higher mix numbers. You may enter an unlimited number of alternative asset mixes in the spreadsheet. 

You can allocate assets to an asset class based on liability returns by selecting Include liability return allocation. This will add a liability return asset class (labelled "LiabRtn") to the Asset Mixes spreadsheet where you can specify the allocation the same way as with asset classes from your Capital Market Simulation. ProVal will calculate the liability returns as part of the stochastic forecast using the liability basis specified in the Asset & Funding Policy>Forecast Analysis topic. See the Liability Return and Excess Return  Technical Reference article for details. Note this option will disallow the ability to vary valuation assumptions by Asset Mix in your forecast. If you are varying funding interest rates or accounting expected return on assets by Asset Mix, you will need to manually include the liability returns as an asset class in your Capital Market Simulation.  

During a stochastic forecast, asset mix returns can be calculated by ProVal or specified by selecting Override calculated expected return for each asset mix. ​If ProVal is calculating the returns, the calculation is based on either continuous or annual rebalancing. If you select Calculate asset mix return using: Annual rebalancing, returns will be calculated on an arithmetic basis, essentially the sum of the weighted return for each asset class. For example, in a given trial, if 30% of the portfolio is in an asset class with an 8% return and the other 70% has a 5% return, the annual rebalancing total return is calculated as (30% * 8%)+(70% * 5%) = 5.9%. For Continuous rebalancing, returns will be calculated on a geometric basis. In our same example, the continuous rebalancing return is [(1.08^0.3)(1.05^0.7)-1]=5.89%. If returns are calculated on a continuous rebalancing basis, it can be shown that the allocation amongst asset classes will be the same at every point in time during the year. This is not the case for Annual rebalancing returns where classes with better returns will become a greater portion of the asset mix over the course of the year.  Only Continuous rebalancing will produce long term compound nominal returns that are comparable to the expected return that one would hand calculate for the asset mix: a weighted average of the expected return for each asset class where the weight is the allocation to that class.

Check the Dynamic asset allocation based on: box to choose an asset mix each year in accordance with a decision rule. Three dynamic allocation structures are available. Asset allocation may vary by stochastic trial if the decision rule is a function of economic factors such as the plan's funded ratio and/or interest rates.  The third option is to vary asset allocation by year. The decision rule is then defined by entering mix numbers into a spreadsheet.

• For the Funded ratio option, asset mixes are assigned to funded ratio intervals. The Funded ratio definition is specified under the Params... button.  (A default setting is provided.) For the funded ratio's numerator, select the Liability basis (available liabilities vary by computation mode). Then, for the funded ratio's numerator, define the Asset Value as either Market Value or Actuarial Value for funding liabilities (Market-Related Value for accounting liabilities).
  
  For example, you may want mixes #1, #2, or #3 to be chosen if the funded ratio is (A) less than .75, (B) between .75 and 1.1 or (C) greater than 1.1 respectively. For this example, enter .75 and 1.1 as the Funded ratio breakpoints. Shorthand notations are available for entering breakpoints. Entering "From .5 to 1.5 step .1" will define eleven breakpoints. Entering "5 intervals from .75 to 1.25 will generate six breakpoints. Note that the number of intervals is always one less than the number of breakpoints. Click the OK button in order to leave the parameters screen and return to the Asset Mixes screen. You now have the opportunity to enter Asset Mix #s for each funded ratio interval in the Mix Map spreadsheet.

• For the Funded ratio and interest rates option, asset mixes are assigned to intervals that vary by both funded ratio and interest rate levels.  Click the Params... button to define the applicable interest rate and funded ratio parameters. The top portion of the parameters screen is identical to that for the Funded Ratio option. Additionally, the Interest Rate Definition is specified here by selecting for the Rate either 30-year government or corporate bonds. (In order to determine the current rate, the Year 0 benchmark yield for the selected rate must be entered in the Benchmark Yield section of Stochastic Assumptions.)
  
  Interest rate breakpoints: may be entered directly (e.g. .03 .07 .11) or by shorthand notations such as "From .02 to .12 step .01" or "5 intervals from .03 to .1" Click the OK button in order to leave the parameters screen and return to the Asset Mixes screen. You now have the opportunity to enter Asset Mix #s. In the Mix Map: (x = funded ratio, y = interest rate) spreadsheet, where an array is offered with each row representing a funded ratio interval and each column representing an interest rate interval.

• For the Calendar year option, Asset Mix #s are entered into the Mix Map spreadsheet. Rows may by added or deleted by placing the cursor in one of the columns and by pressing either the Ctrl-Ins or Ctrl-Del key.
  Complete a row for each calendar year. For example, if the valuation date is 7/1/2015 and the Asset Mix number is 8 through 2020 (i.e. until 7/1/2021) and Asset Mix #3 thereafter, enter:
  
  From To Mix #
  --  2020         8
  2021 --  3
  
  ProVal fills in the To column automatically and the Asset Mix # will be used for the last year entered and all years thereafter. Note that the From box in the first row cannot be modified. Our example involved only two asset mixes. If you have several asset mixes in your assumptions, you may need to press the ENTER key to create a new row.

The Allow re-risking checkbox and the ability to delay the dynamic asset allocation are available for Dynamic asset allocation based on: either Funded ratio or Funded ratio and interest rates.  

If Allow Re-risking is not checked, the historically highest funded ratio for each stochastic trial will be used for table lookup purposes. If the checkbox is checked, the current funded ratio will be used. 

Dynamic asset allocation may be delayed by checking the During a deferral period of x year(s), use asset mix # y checkbox.  After checking the box, enter the deferral period and the Mix # to be used during the deferral period.