Stochastic economic models for actuarial use: an example from China

Fei Huang, Adam Butt and Kin-Yip Ho

Annals of Actuarial Science, 2014, vol. 8, issue 2, 374-403

Abstract: In this paper, the first study of stochastic economic modelling with Chinese data is conducted for actuarial use. Univariate models, vector autoregression and two cascade systems (equity-driving cascade system and price-inflation-driving cascade system) are described and compared. We focus on six major economic assumptions for modelling purposes, which are price inflation rate, wage inflation rate, long-term interest rate, short-term interest rate, equity total return and bond total return. Granger causality tests are used to identify the driving force of a cascade system. Robust standard errors are estimated for each model. Diagnostic checking of residuals, goodness-of-fit measures and out-of-sample validations are applied for model selection. By comparing different models for each variable, we find that the equity-driving cascade system is the best structure for actuarial use in China. The forecasts of the variables could be applied as economic inputs to stochastic projection models of insurance portfolios or pension funds for short-term asset and liability cash flow forecasting.

Date: 2014
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:anacsi:v:8:y:2014:i:02:p:374-403_00

Access Statistics for this article

More articles in Annals of Actuarial Science from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().