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The Need for Theory in Actuarial Economic Models

Published online by Cambridge University Press:  10 June 2011

P.P. Huber
Affiliation:
Swiss Re Life & Health Limited, Tower 42, Old Broad Street, London EC2N 1HQ, U.K.
R.J. Verrall
Affiliation:
Department of Actuarial Science and Statistics, The City University, Northampton Square, London, EC1V 0HB, U.K.

Abstract

This paper addresses the fundamental issues in the construction and use of actuarial economic models, with specific reference to those described in the UK literature. Two approaches are considered: an empirical approach and a theoretical approach using financial economics. Although empirical testing is essential, the difficulties associated with it should not be underestimated. A theoretical framework can be used to limit the impact of these difficulties. However, economic modelling is further complicated by the lack of a reliable and comprehensive theoretical framework. This suggests that economic models are always likely to be inaccurate and consequently actuarial judgement is likely to be indispensable.

Type
Sessional meetings: papers and abstracts of discussions
Copyright
Copyright © Institute and Faculty of Actuaries 1999

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