Description: This article talks about the role that models played in the subprime meltdown and the subsequent crisis in the financial markets in general. The models failed to provide information about the magnitude of potential 'black swans'. Extreme Value Theory [EVT] is described as a potential solution to this error.

Description: The Delphi Method is discussed in detail. The method attempts to filter out the consensus bias that can result from societal forces by employing a technique whereby an anonymous collection of opinions is used, supplemented by feedback loops that can be used to influence outcomes.

Description: There is widespread acknowledgement in the insurance industry that cyber risk remains an untamed and seemingly ever-growing beast. It is also unique in the family of risk exposures faced by insurers in that it is both an emerging risk and an emerged risk. What are companies doing to keep on top of this risk? What are actuaries doing to contribute to cyber risk management, and what can we learn from other industries and disciplines?

Description: The article discusses the investment models of The Mutual Pension Insurance Company Ilmarinen, one of the companies managing the statutory employment pension in Finland. The parts are: financial time series data management, time series analysis programs, investment simulation models and portfolio optimization models.

Description: This article, with some humor, describes a movement known as “econophysics” of physicists modeling economic systems, including capital markets, using techniques and concepts developed in studying the out-of-equilibrium dynamics of complex systems. A version of this article appeared in The Actuary UK in August 2004. Reprinted with permission.

Description: This article is the first in a series of articles on insurance applicant mortality risk analytics. From Small Talk Newsletter, Issue 37, January 2012.

Description: Python is the leading programming language for data science. Python programming is one skill that actuaries should acquire. It facilitates analytic work, and the available visualization tools help to communicate ideas. In this article, I use a traditional actuarial problem, mortality modeling, as an example.

Description: According to the Actuarial Standards Board’s Actuarial Standard of Practice No. 49 (ASOP 49), actuarially sound Medicaid managed care capitation rates will include a provision for underwriting gain in order to provide compensation for the risks assumed by an MCO. However, there is no generally accepted method for quantifying underwriting gain in managed Medicaid capitation rates. This article discusses a new model developed to address this void and calculate underwriting gain. The model was developed by researching existing financial literature and performing a statistical analysis of industry data to build out a framework that can be leveraged to estimate underwriting gain.

Description: This article describes the financial modelers’ manifesto. Focus is on how difficult it is to model financial instruments when there is a human element involved.

Description: This article discusses the reliance the banking industry placed on sophisticated mathematical models.