This post draws heavily on previous posts that discuss the mechanics of the Performance Factor, which I divide into two independent parts - the MX Factor and the QX Factor. You can find the initial post on the MX Factor here and the two posts on the QX Factor here and here. 

One of my more astute readers shot me a note last week with a very simple question – what happens when you start looking at PDX through the lens of lower illustrated returns? Of course, he knew the answer. The fact that PDX is extremely sensitive to the illustrated rate assumption is broadly acknowledged in the market. What’s more interesting, though, is why PDX is so sensitive. That’s what we’re going to tackle in this post.