Description: Equity-indexed annuities [EIAs] can be viewed as mutual funds wrapped around with various guarantees. A recent paper derived a closed form formula for pricing this dynamic guarantee if early withdrawal from the fund [before maturity] is not permitted. This paper studies the pricing of dynamic protection without a maturity date, i.e., the investor chooses the date to cash in the fund accumulation.

Description: In this paper, we propose measures of the risk that the value of the liabilities becomes larger than the value of the assets, and this especially for insurance companies. We study probabilities of mismatching and a degree of mismatching in unsegmented and multidimensional models of the balance, in which we stress the influence of interest rates on the active and passive side of the balance.

Description: A presentation on the principle of equivalent utility from the 2001 ARCH. Contains both the static and dynamic model as well as examples with exponential utility.

Description: The financing for Social Security is a pay-as-you-go system, rather than the full-reserve system utilized in private insurance, and the financing conditions of the trust funds have more uncertainty than does the reserve in private insurance. Traditionally, the financing conditions have been decided by a deterministic approach using economic and demographic assumptions that rely upon negotiation among experts at various government agencies. This paper proposes an econometric approach, called the 'co-integrated multivariate time series model,' for forecasting the financing conditions of the trust funds. This stochastic approach not only establishes the interrelationships but also clarifies the co-movements among the economic assumptions. Furthermore, it helps analyze the original assumptions rather than the differences of the nonstationary assumption variables adopted by researchers in the past that are more difficult to interpret. Use of this approach permits the assessment of the probability distribution of the future balance of trust funds instead of assessing estimates from the three alternative deterministic assumptions. This distribution will provide policy-makers with a better assessment of stability of the trust funds.

Description: Design and future maintenance of an asset portfolio backing a new line of business is critical for proper asset and liability management for that business. Most portfolio optimization methods utilize linear or quadratic programming and require the user to specify the asset and liability attributes and cash flows into the program. The programmer must also supply an objective function to allow the program to find the optimal asset mix for the associated liabilities. Two problems with this approach are that the liability cash flows are fairly static and that one must frequently rebalance the portfolio. An alternative approach would be to develop a corporate model of both the assets and liabilities and incorporate various economic scenarios as input into the model. Asset strategies would be measured against a specific objective function that is calculated by the corporate model. Unfortunately, the majority of maximization algorithms available are very time consuming, and obtaining a reasonable portfolio mix becomes impractical. This paper overcomes this difficulty by using a very rapid optimization method from the chemical engineering profession called the Floppy Triangle. The paper includes an example of the use of this process to determine an optimal portfolio. It also discusses modifications of the algorithm that is required when the shorting of assets is not permitted.

Description: This paper analyzes the accuracy of the principal models used by U.S. insurance regulators to predict insolvencies in the property-liability insurance industry and compares these models with a relatively new solvency testing approach- cash flow simulation. Specifically, the authors compare the risk-based capital [RBC] system introduced by the National Association of Insurance Commissioners [NAIC] in 1994, the 'FAST' [audit ratio] system used by the NAIC, and a cash flow simulation model developed by the authors. Both the RBC and FAST systems are static, ratio based approaches to solvency testing, whereas the cash flow simulation model implements dynamic financial analysis. Logistic regression analysis is used to test the models for a large sample of solvent and insolvent property-liability insurers, using data from the years 1990-1992 to predict insolvencies over three-year prediction horizons. The authors find that the FAST system dominates RBC as a static method for predicting insurer insolvencies. Further, they find the cash flow simulation variables add significant explanatory power to the regressions and lead to more accurate solvency prediction than the ratio-based models taken alone.

Description: This paper develops a simplified model for a pension fund, both deterministic and stochastic versions are presented. The probability distribution of the fund is derived incorporating the claims distribution and other parameters. Expected value and the variance of the fund are derived. Modifications required for the model when the interest rate is a moving average process are developed. From Actuarial Research Clearing House 1998 Vol. 2.

Description: This is the abstract of a paper about developing a model that will provide insight into the true inherent value of a property-liability insurance company from a market perspective.

Description: The main aim of this paper is to apply some of the techniques of modern time series and econometric analysis to analyse investment data in order to better understand the nature of long run relationships in investment series typically used in stochastic investment models. The paper attempts to identify and address fundamental issues that need to be considered before developing a particular stochastic investment model.

Description: This paper suggests ways of presenting ideas from the theory of compound interest and actuarial mathematics using simulation on spreadsheets. From the Actuarial Research Clearing House 1997 Vol. 1.

Description: This paper addresses the evaluation of long-term returns when the short interest rate is modeled by a general diffusion process. By deriving the long-term return dynamics and invoking the Feyman-Kac formula, the long-term return is represented as the solution of a partial differential equation. A finite difference method is derived for the valuation of the long-term return. The method could be used for hedging interest rate risk, pricing and managing interest rate derivatives and interest rate sensitive insurance products. Numerical examples are included.

Description: This paper focuses on the fact that life and annuity reserves that are determined from discounted case flows mask the dynamic nature of interest rates. To study this effect in a stochastic interest environment, the authors look at a change in discounted reserves. By looking at the appropriate measure of change, the paper explores potential short-term consequences of changes in the interest environment.

Description: This paper analyzes the U. S. Treasury monthly interest rates from 1953 to 1992, and the daily rates from 1981 to 1992 for various forms of chaotic behavior. The primary analysis was in determining the Burst Exponent by the use of Rescaled Range Analysis. This paper also discusses other possible uses of Fractional Brownian Motion in Finance Theory, Macroeconomics, and Actuarial Science. From Actuarial Research Clearing House 1994 VOL. 1.

Description: This is the abstract for the paper entitled 'Pricing Long Term Insurance Contracts.' This paper considers several models describing the changes in the needs of the insured for care over time. From Actuarial Research Clearing House 1994, VOL. 1.

Description: This paper explores and develops some initial ideas of roll-forward reserve funding of Social Security. It reports on the work of actuarial students and teachers for an 8-week study period coordinated with the National Science Foundation program of Research Experience for Undergraduate grants. From Actuarial Research Clearing House 1994, VOL. 1.

Description: Easy access computing power is harnessed to approximate ruin probabilities. The dynamics of the traditional insurance model are stated in the form of period to period constraints. This allows the development of a life-table with the survival probabilities for a given set of parameters. Given the spreadsheet approach of the model, sensitivity analysis to study the impact of different parameter values and loss variable distributions can be easily implemented.

Description: Concomitant with the industrial revolution, the function of providing old age income shifted from families and local institutions to government social security and private pension plans. The history of this change in the U.K. and U.S. is reviewed. A simple mathematical model provides insights into the role played by three rates [the rate of increase of the working population, the time preference rate, and the rate of real wage growth] in determining optimum funding policy. From Actuarial Research Clearing House 1994, Vol. 2.

Description: Letters to the national association of insurance commissioners life/health actuarial task force regarding the development of the new annuity non-forfeiture law. Letters are addressed to Mr. Howard Kayton, Mr. Allan Roby, and Mr. John Montgomery. Also included is a demonstration of the workings of a two tiered annuity.

Description: Pension funds are usually either defined benefit or defined contribution funds. In Australia in recent years, for a number of reasons, some pension funds have offered the 'greater of,' these two benefits. Such a benefit design can be valued using contingent claims valuation techniques since it is equivalent to an option on the maximum of two random benefit amounts - one equal to a multiple of salary and the other the accumulation of a percentage of salary at an earnings rate. This paper overviews some of the issues in applying contingent claims valuation techniques to the valuation of this style of benefit. From Actuarial Research Clearing House 1993, Vol. 1.

Description: This paper is a report on research for undergraduate experience grants held for 8 weeks under the direction of Cecil Nesbitt. The topic of the research was Social Security Financing and Related Matters. From Actuarial Research Clearing House 1993, VOL. 1.

Description: This paper presents a new perspective on three basic financial quantities: assets, liabilities and surplus. The new perspective is developed through a re-examination of the fundamental concepts inherent in these quantities. This re-examination clarifies the difference between the concept and the various rules commonly used to establish their numerical value. With the benefit of this clarification, an alternate approach to the development of surplus is presented. From Actuarial Research Clearing House 1993, VOL. 3.

Description: This paper discusses contracts sold by states which promised to provide tuition in the future for a fixed price. Because these contracts provide a benefit whose dollar value is uncertain at the time of sale, these contracts contain significant risks to the states and create a challenge to the actuaries who opine on the adequacy of the trust funds to provide the benefits promised by these contracts. This article discusses some of the implications of the method used by the major states to project tuition inflation and explores other possible methods. From Actuarial Research Clearing House 1993, VOL. 3.

Description: This paper shows at a relatively low cost, computer assisted instructional techniques can materially improve both classroom instruction and independent study. This discussion is limited to the material used in a Penn State mathematics of finance course. From Actuarial Research Clearing House 1993, VOL. 1.

Description: This paper describes the nature of a multimedia computer-based colloquium and demonstrates how the technology can be used within an actuarial science instruction setting and describes the steps taken to ease the transition into this environment. From the Actuarial Research Clearing House 1992 Vol. 1 .

Description: In this paper the ad-hoc Bayesian derivation of the Whittaker method is replaced with a formal Bayesian specification, and then it is shown that with this specification it is possible to complete the graduation without making an arbitrary selection of the smoothing parameter. From Actuarial Research Clearing House 1992, VOL. 1.

Description: This paper gives a brief review of advanced time series models, the state space model, using Monte Carlo techniques and subsequently illustrates their usefulness to practicing actuaries. The models employed allow for the possibilities of nonnormal errors and nonlinear functionals in the state equation, the observational equation or both. The approach is illustrated with several examples and data compiled by the National Center for Health Statistics.

Description: This paper examines four and-a-half years of prescription records for an elderly population who have relatively comprehensive out-of-hospital drug coverage under the Pharmaceutical Assistance Contract for the Elderly program in Pennsylvania. The result is a discussion of the determination of non-parametric estimations of the distributions. From Actuarial Research Clearing House 1991, Vol 1.

Description: Option bounds are obtained in a discrete-time framework with transaction costs. The model represents an extension of the Cox-Ross-Rubinstein binomial option pricing model to cover the case of proportional transaction costs. The method proceeds by constructing the appropriate replicating portfolio at each trading interval. From Actuarial Research Clearing House 1991, VOL. 1.

Description: This paper presents the application of the asset share technique of pricing to Home Equity Line of Credit insurance. The paper's objective is to provide useful tools when developing a new HELOC product including projections for marketing and underwriting, distinctions between desirable and undesirable product design features, and development of premium rate structures. From Actuarial Research Clearing House 1990, VOL. 2

Description: This paper develops a theory for the valuation of some kinds of interest sensitive cash flows. A process is derived which takes as input, assumptions about the capital markets and policy holder behaviour, and produces as output interest and decrement assumptions which can be used for conventional actuarial discounting. The methodology is illustrated using some idealized, but tractable, models of conventional non-par whole life insurance. The method is also applied to a simple Universal Life plan. The paper concludes by considering some of the problems encountered when applying the ideas to more practical problems.

Description: This research paper examines the justification of using the one-factor general equilibrium model of Cox, Ingersoll, and Ross to model the term structure of interest rates and their volatility. From the Actuarial Research Clearing House ARCH 1990 Vol. 1.

Description: Presented at 1983 Actuarial Research Conference. Discussion focuses on improving coordination between practicing actuaries, academic actuaries and non-actuarial academics. The situations in Canada and the UK are also discussed. The emphasis is on research and communications among the different parties.