Stochastic Asset Models for Actuarial Use in Ghana
International Journal of Statistical Distributions and Applications
Volume 3, Issue 4, December 2017, Pages: 129-139
Received: May 28, 2017; Accepted: Jun. 12, 2017; Published: Jan. 16, 2018
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Evans Tee, Department of Business Administration, Regentropfen College of Applied Sciences, Bolgatanga, Ghana
Eric Dei Ofosu-hene, Department of Finance, University of Ghana Business School, University of Ghana, Legon, Ghana
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The need for stochastic asset models has evolved from a common global standard for risk management in the Solvency II regime in Europe, IAIS Common Principles, Global ORSA standards NAIC, EIOPA, and OSFI. But the challenges in developing markets such as; lack of good quality data, inconsistent data coverage, market data not having long enough history, and lack of liquidity in certain parts of asset market have caused the absence of such models in Ghana. There have been a number of actuarial stochastic asset models designed for simulating future economic and investment conditions in several parts of the world. This study has discussed three of such models and determined which best fits the Ghanaian economic data. The data used for the empirical analysis in this study were taken from the Bank of Ghana database and the Ghana Stock Exchange. The study re-calibrated the models to derive the parameter set then compared the model results numerically after running 10000 simulations for 50 horizons. Investigations about the basic statistics of the simulated results for all the models are compared. The analysis revealed that all of the Ghanaian investment series used in the stochastic investment modeling are non-stationary in their mean, variance and auto-covariance. The study then found that the “Wilkie linear model” produced simulated values with similar characteristics to the historical data whiles the Whitten & Thomas TAR model produced simulated values with minimal forecast error. The study therefore suggests that since the “Wilkie linear model” has a relatively better parsimony, ready economic interpretation and its ability to mimic some important features of the Ghanaian economic series it deserves the attention of the actuary seeking to model jointly the behavior of asset returns and economic variables that matter in economic capital determination of insurance and pension business in Ghana.
Wilkie Linear Model, TAR Model, Stochastic, Asset, Simulations, Ghana
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Evans Tee, Eric Dei Ofosu-hene, Stochastic Asset Models for Actuarial Use in Ghana, International Journal of Statistical Distributions and Applications. Vol. 3, No. 4, 2017, pp. 129-139. doi: 10.11648/j.ijsd.20170304.20
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