Bahnhofskolloquium I 2025/2026: "Parameter Risk"
Bahnhofskolloquium I
Topic: Parameter Risk
Presenter: Frank Cuypers, Prime Re Solutions
SAV-CPS 1
Gathering 18.00, Start 18.15 o'clock
Summary: "In many actuarial calculations today, it is no longer sufficient to simply derive best estimates; instead, it is expected that the possible fluctuations in the outcome beyond these best estimates are also quantified and accounted for. This is certainly the case when carrying out a solvency exercise, but also when deriving the risk margin of loss reserves or determining the cost of capital of a tariff.
These deviations from the best estimate typically originate from two independent sources of randomness: the process risk and the parameter risk. While the latter component is generally negligible when working with large samples of good quality data, it can become significant or even dominate when data is inconsistent or scarce. Large parameter errors may even signal inadequate models.
This presentation outlines a simple and general method of accounting for the uncertainties that arise when calibrating the parameters of any actuarial model. It involves sampling the probability distribution of the parameters, which is implicitly derived from a chi-squared fit to the data."