Chapter 18 - Modelling Flashcards
Producing a solution
Model can be
Commercially produced
Modified existing model
New model
Construction of an actuarial model
Operational issues
Fit for purpose Well documented Easily communicable Sensible joint behavior of variables Capable of independent verification Not overly complex or time consuming Capable of development and refinement Capable being implemented in a range of ways
Developing a model
Specify purpose Obtain and adjust data Set parameters Cobstruct cashflows Check accuracy and fit of model Run model many times Output and summarize results
Use models for pricing
RDR allow for
Return required by company
Levels of statistical risk
Use models for pricing
Premiums consideration may require consideration of
Product design Distribution channels Profit requirement Size of market Whether to go ahead with product
Use of models for setting future financing strategies
Used by benefit schems
Amount and timing of future contributions
Acceptable to have deficit of covenant is strong enough and suggicient assets to meet benefit outgo
Use of models for risk management
Determine capital requirements
Use of models for assessing provisions
Valuation of liabilities each individual or model points
Use of models for pricing options and guarantees
Prices using a stochastic model
Model and parameter error
Results only as good as model an parameter values
Sensitivity analysis
Scenario testing
Goodness of fit
Alternative ways of allowing for risk
Statistical risk allowed for in discount rate or margins in parameter values
