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Quasi-Monte Carlo Methods In Cash Flow Testing Simulations, Michael Gene Hilgers

Business and Information Technology Faculty Research & Creative Works

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 …