Description: Provides a metric based on the concept of "entropy" from information theory/signal processing, for modifying a stochastic scenario set to meet pre-defined targets on average across the set. Explains the concept and develops it in simple examples. Illustrates why an optimal adjustment to the scenario set is one that maximizes entropy. Provides guidelines to limit use of the technique appropriately and avoid invalid application of the tool.

Description: Announcement of an upcoming 2003 Stochastic Modeling Symposium.

Description: In 2003, the American Academy of Actuaries Life Capital Adequacy Subcommittee LCAS published a set of 10,000 stochastic scenarios that was intended to be used to support the publication, “Recommended Approach for Setting Regulatory Risk-Based Capital Requirements for Variable Products with Guarantees Excluding Index Guarantees.” The primary purpose of this article is to illustrate statistical measures that can be used to evaluate stochastic simulations.

Description: Explains considerations for stochastic modeling of credit spreads, inflation and exchange rate risk.

Description: The article discusses under which conditions it is appropriate to use the true probability distribution or the risk-neutral probability distribution for interest rate scenario generation. It addresses which should be used for valuation purposes and strategy development.

Description: This article discusses a simple simulation model that analyzes the implications of using real world assumptions for determining customer behavior when calculating hedge positions to support minimum guarantees for variable annuities. Article from Risk and Rewards, August 2006, Issue No. 8.

Description: Feature article discussing hedging programs becoming a mainstay in the risk management arsenal of life insurers. It focuses on the significant stresses on variable annuity hedging programs.

Description: This article discusses techniques for modeling credit risk, including discussion of default assumptions and recovery rates.

Description: In it’s insurance capital model, Standard & Poor’s Ratings Services has established criteria to adopt the NAIC’s stochastic approach to variable annuity risk. This approach, which replaces existing static charges, better reflects the products’ risk.

Description: Feature article discussing the use of stochastic volatility models in the pricing of investments and options.