Skip to content

IAI Actuarial Core Principles · Economic Modelling · Valuing benefit guarantees using simulation

A simulation estimate of a guarantee cost is Rs 12.0 crore with a sample standard deviation per path of Rs 30 crore, using 10,000 independent paths. What is the approximate 95% confidence interval (using 1.96 standard errors)?

The interval is Rs 11.41 to 12.59 crore. The standard error is 30 divided by the square root of 10,000, which is 0.30; multiplying by 1.96 gives 0.588, which is added to and subtracted from the 12.0 estimate.

  1. ARs 11.41 to 12.59 croreCorrect
  2. BRs 6.12 to 17.88 crore
  3. CRs 11.80 to 12.20 crore
  4. DRs 9.06 to 14.94 crore
  5. Rs 0.12 to 23.88 crore

Explanation

Standard error = 30/sqrt(10,000) = 0.30. Half-width = 1.96 x 0.30 = 0.588. Interval = 12.0 ± 0.588, i.e. 11.41 to 12.59. Option B wrongly uses 1.96 x 3 (a wrong base), and option D uses 1.96 x 1.5.

Did you get it right without looking?

One question tells you little. A timed set on Valuing benefit guarantees using simulation shows your real accuracy, how long you take and where you lose marks.

Practise Valuing benefit guarantees using simulationFree diagnostic mock

More Valuing benefit guarantees using simulation questions