Description: With the credit interest rate floor of a cash balance plan—a simple type of option identified by the Project Oversight Group—as a model, this research uses three valuation and risk analysis approaches to explore the existing techniques to value embedded options on an economic basis.

Description: With the credit interest rate floor of a cash balance plan—a simple type of option identified by the Project Oversight Group—as a model, this research uses three valuation and risk analysis approaches to explore the existing techniques to value embedded options on an economic basis.

Description: Economic risk analysis has two dimensions: time and frequency. Asset return varies by time because of economic cycles and economic structural changes. Risk is higher during economic recessions and smaller during economic expansions. In addition, different economic structures may exist at different time scales. Risk measures calculated based on daily, weekly, monthly and yearly historical data can be very different. The appropriate frequency depends on the time horizon of the analysis. Therefore, it is important to measure economic risk at both the time level and the frequency level. However, time series analysis and statistical analysis that have been widely adopted in economic risk analysis focus on only one of the two dimensions. In this paper, wavelet models are used to enhance both time‐invariant analysis and time‐variant analysis. Wavelet models can systematically analyze risk by time and frequency and provide richer information than time series models. Using wavelet models, risk measurement can easily be adjusted based on time horizon in a consistent way. Equity VaR estimation is selected to demonstrate the application of wavelet analysis in risk management.

Description: Wavelet models are used to analyze risk by time and frequency and provide richer information than time series models.

Description: This paper introduces actuaries and others to dynamic stochastic general equilibrium (DSGE) models, a type of macroeconomic model. Authored by Kailan Shang, the paper illustrates how DSGE models can be used in economic scenario generation to reflect the cause and effect relationships that occur in the economic system.

Description: The asset portfolios of retirees’ serve many purposes including current income, liquidity, purchasing power, estate, tax minimization, and so on. Multiple objectives with different levels of importance lead to a complex asset allocation problem for retirees. Existing asset allocation methods normally focus on a subset of the multiple objectives of retirees in an approximate way. The simulation-based multiple objective asset allocation method objectively assesses each allocation plan against multiple objectives in a consistent way and provides a more holistic picture of possible outcomes. This information is critical for finding the optimal allocation plan. The optimization is based on the weighted performance relative to multiple objectives. At the same time, it requires more inputs and advanced modeling.

Description: A brief introduction to a new SOA research on liability-driven investment benchmark model.

Description: This research report studies the social media response to three extreme tornado outbreaks: May 22, 2011 in Joplin, MO, November 17, 2013 in Washington, IL and April 9, 2015 in Rochelle, IL. It uses Twitter data with a 14‐day period for each tornado event with a focus on a 24‐hour period surrounding the event. It starts with an overview of the data followed by analysis of geolocation, insurance related user influence, social network, and sentiment.

Description: This article discusses how unemployment and underemployment information can help improve economic forecasts, insurance assumption setting and risk management. It summarizes the current modeling practices of unemployment which shows a deficiency of using unemployment/ underemployment information in actuarial works. It also gives three examples of using unemployment/underemployment information for economic assumption setting, new business growth prediction and stress scenarios related to the labor market.

Description: Article describing the most recent Risk Management Section research updates