Following the thread

(Sep 18, 2012)

Gavin recently explored the topic of threads and parallel processing.  But what does this mean from a business perspective?  Well, parallel processing can result in considerable speed increases for certain actuarial and statistical calculations. If done well, spreading the workload over four threads (say) can reduce the execution time to almost a quarter of its single-threaded equivalent. Many complicated actuarial calculations lend themselves well to multi-threading, and thus considerable reductions in run-times.  A good example of this is simulation, which plays a major role in Solvency II work.  To illustrate, Table 1 shows the execution time for 10,000 run-off simulations of a large annuity…

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Tags: threads, parallel processing, simulation, Solvency II, technology

A model point

(Nov 28, 2010)

The current issue of The Actuary magazine carries an article on the selection of model points.  Model points were widely used by actuaries in the 1980s and 1990s, when computing power was insufficient to perform complex policy calculations on every policy in a reasonable time-frame.  The idea is to select a much smaller number of sample policies, whose behaviour in aggregate mimics that of the portfolio overall.

There are several ways of selecting policies as model points, or even creating them from scratch: sometimes actuaries would create model points which had no counterpart in the portfolio.  However, computing power has come a long way since the times when model points were necessary.  By way of illustration,…

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Tags: model points, simulation

Getting the rough with the smooth

(Apr 10, 2010)

There are two fundamentally different ways of thinking about how mortality evolves over time: (a) think of mortality as a time series (the approach of the Lee-Carter model and its generalizations in the Cairns-Blake-Dowd family); (b) think of mortality as a smooth surface (the approach of the 2D P-spline models of Currie, Durban and Eilers and the smooth versions of the Lee-Carter model).

In a time-series model the mortality rates of the population are presumed to follow an underlying process.  But how do we simulate observed rates in a smoothed model which has no such process?  In this post we describe how we can simulate future sample paths of mortality in this second family.  An illustration from a smoothed…

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Tags: mortality projections, simulation

Run-off volatility

(Dec 5, 2009)

When investigating risk in an annuity portfolio, a key task is to simulate the future lifetime for each annuitant.  Survival models make this particularly easy, as covered in an earlier posting on simulating lifetimes.

One of the first things which strikes practitioners is that volatility in run-off valuations increases with the average age of a portfolio.  The reason for this is that the variation in future lifetime gets larger relative to the average future lifetime.  One way of looking at this is to use the coefficient of variation, which is simply the standard error of the future lifetime divided by the mean:

coefficient of variation = standard error / mean

The coefficient of variation is normalised in that…

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Tags: simulation, curve of deaths, coefficient of variation, ICA, Solvency II

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