PROCEEDINGS May 15, 16, 17, 18, 2005 - Casualty Actuarial Society

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212 MODELING FINANCIAL SCENARIOS1st—99th percentile range after 10 years is ¡5:1% to +9:7%,reflecting a similar distribution for the full year as was observedfor the monthly values. For the 10-year real interest rates, themean after the first projection month is 1.1%, and in the lastprojection month, the mean is 2.6%, reflecting the strength ofthe mean reversion over this long a period of time. The 1st—99thpercentile range after 10 years is ¡3:3% to +7:6%, reflecting themore compact distribution for long-term (10-year) real interestrates, compared to shorter time horizons.Figures 1 through 3 depict the funnel of doubt graphs ofone-month, one-year and 10-year real interest rates. All reflectthe same shape, although the scaling differs. The “kink” in theearly portion of the graph occurs because the first 12 points representmonthly intervals, which have small changes in values, andthe latter steps are larger intervals, which lead to correspondinglylarger changes. The level of uncertainty increases over the entire50-year time frame, but the shifts toward the end of the simulationperiod are less pronounced. This shape occurs because of thestructure and parameterization of the model. The uncertainty inherentin the real interest rate process generates the initial spreadof the distribution, but the impact of mean reversion offsets thistendency, keeping the “funnel of doubt” from expanding further.InflationThe next variable of interest is the inflation rate. As shown inTable 1, the mean value of the (annualized) one-month inflationrate is 2.3% after the first projection year and 4.8% after 50years. Note that the initial inflation rate (qinit1) is set at 1.0%and 4.8% is the long-term mean (qm2). The 1st—99th percentilerange after 10 years is ¡5:3% to +14:5%, which is wider than thedistribution for real interest rates since the mean reversion speedfor inflation is lower (0.4 compared to 1.0). Negative inflation(or deflation) is not objectionable since small negative monthlyvalues have occurred in recent years. Also, monthly inflationvalues in excess of 14.5% did occur during the 1970s.
MODELING FINANCIAL SCENARIOS 213FIGURE 1Distribution of 1-Month Real Interest Rate ProjectionPeriod:1Monthto50YearsFIGURE 2Distribution of 1-Year Real Interest Rate ProjectionPeriod:1Monthto50Years
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VOLUME XCII NUMBERS 176 and 177PROC
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FOREWORDActuarial science originate
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2005 PROCEEDINGSCONTENTS OF VOLUME
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2005 PROCEEDINGSCONTENTS OF VOLUME
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Editorial Committee, Proceedings Ed
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2 AN EXAMINATION OF THE INFLUENCE O
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10 AN EXAMINATION OF THE INFLUENCE
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AN EXAMINATION OF THE INFLUENCE OF
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RISKINESS LEVERAGE MODELSRODNEY KRE
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RISKINESS LEVERAGE MODELS 33There a
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RISKINESS LEVERAGE MODELS 35where f
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RISKINESS LEVERAGE MODELS 37where a
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RISKINESS LEVERAGE MODELS 39Various
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RISKINESS LEVERAGE MODELS 49The las
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RISKINESS LEVERAGE MODELS 51ple. Th
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RISKINESS LEVERAGE MODELS 53the TVA
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RISKINESS LEVERAGE MODELS 55We also
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RISKINESS LEVERAGE MODELS 57Mean Va
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RISKINESS LEVERAGE MODELS 59APPENDI
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DISCUSSION OF A PAPER PRESENTED AT
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RISKINESS LEVERAGE MODELS 63known t
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RISKINESS LEVERAGE MODELS 67implies
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RISKINESS LEVERAGE MODELS 734. INTE
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RISKINESS LEVERAGE MODELS 79REFEREN
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RISKINESS LEVERAGE MODELS 81EXHIBIT
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RISKINESS LEVERAGE MODELS 83
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WHY LARGER RISKS HAVE SMALLER INSUR
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ADDRESS TO NEW MEMBERS 151ateship a
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ADDRESS TO NEW MEMBERS 153You shoul
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ADDRESS TO NEW MEMBERS 155strength
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MINUTES OF THE 2005 CAS SPRING MEET
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MINUTES OF THE 2005 SPRING MEETING
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Page 187 and 188: Volume XCII, Part 2 No. 177PROCEEDI
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THE APPLICATION OF FUNDAMENTAL VALU
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A NEW METHOD OF ESTIMATING LOSS RES
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ARCHITECTURE FOR RESIDENTIAL PROPER
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ESTIMATING THE WORKERS COMPENSATION
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INCORPORATION OF FIXED EXPENSESGEOF
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DISCUSSION OF PAPER PUBLISHED INVOL
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APPLICATION OF THE OPTION MARKET PA
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THE “MODIFIED BORNHUETTER-FERGUSO
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ADDRESS TO NEW MEMBERS-NOVEMBER 14,
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ADDRESS TO NEW MEMBERS 743Now to an
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PRESIDENTIAL ADDRESS-NOVEMBER 14, 2
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MINUTES OF THE 2005 CAS ANNUAL MEET
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MINUTES OF THE 2005 ANNUAL MEETING
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REPORT OF THE VICE PRESIDENT-ADMINI
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2005 EXAMINATIONS—SUCCESSFUL CAND
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OBITUARIESROBERT GRANT ESPIECLYDE H
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OBITUARIES 825SIDNEY M. HAMMER1931
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OBITUARIES 827J. GARY LaROSE1947—
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OBITUARIES 829PAUL J. SCHEEL SR.193
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OBITUARIES 831LEO M. STANKUSCirca 1
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INDEX TO VOLUME XCIIPage2005 EXAMIN
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835GRAVES, CLYDE H.INDEX—CONTINUE
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837INDEX—CONTINUEDREPORT OF THE V
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PROCEEDINGS May 15, 16, 17, 18, 2005 - Casualty Actuarial Society

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