Quasi-Monte Carlo methods in cash flow testing simulations

What actuaries call cash flow testing is a large-scale simulation pitting a company's current policy obligation against future earnings based on interest rates. While life contingency issues associated with contract payoff are a mainstay of the actuarial sciences, modeling the random fluctuations of US Treasury rates is less studied. Furthermore, applying standard simulation techniques, such as the Monte Carlo method, to actual multi-billion dollar companies produce a simulation that can be computationally prohibitive. In practice, only hundreds of sample paths can be considered, not the usual hundreds of thousands one might expect for a simulation of this complexity. Hence, insurance companies have a desire to accelerate the convergence of the estimation procedure. This paper reports the results of cash flow testing simulations performed for Conseco L.L.C. using so-called quasi-Monte Carlo techniques. In these, pseudo-random number generation is replaced with deterministic low d...

• Type: Conference
• Year: 2000
• Where: WSC
• Authors: Michael G. Hilgers
• Keywords: Carlo Method, Cash Flow Testing, Modeling And Simulation, Simulations, WSC 2000