Date of this Version
Journal of Actuarial Practice 7 (1999), pp. 73-106
As assumptions underlie every aspect of actuarial calculations, actuaries must be aware of the assumptions they are using and understand their importance and the possible effects of changing assumptions on the results of their calculations. This paper explores the nature of assumptions in: (i) mathematical models, (ii) data selection, (iii) actuarial methods, and (iv) the business environment. We examine reasons for making assumptions such as convenience, tradition, indications in the data, or lack of data. In addition, we discuss (i) how actuaries can judge whether these reasons are sufficient; (ii) methods that can help actuaries quantify the impact of their assumptions, such as what-if scenarios, simulation, and stress testing; and (iii) the circumstances for which testing is most important.
Accounting Commons, Business Administration, Management, and Operations Commons, Corporate Finance Commons, Finance and Financial Management Commons, Insurance Commons, Management Sciences and Quantitative Methods Commons