2006 General Meeting Assemblée générale 2006 Chicago, Illinois Canadian Institute of Actuaries L’Institut canadien des actuaires 2006 General Meeting Assemblée générale 2006 Chicago, Illinois

IP-20: Stochastic Interest Rate Modeling in Life Insurance Pricing Nazir Valani, FCIA, FSA, MAAA

Practical Example Generate 5,000 scenarios using AXIS to be used for pricing

Practical Example Interest Rate Models in AXIS: Correlated Monte Carlo (2) 2 factor Log Normal (3) Calibrated Correlated Monte Carlo (4) Prescribed CALM scenarios

Practical Example Equity Rate Models in AXIS: Correlated Monte Carlo (2) Correlated Log Normal (3) Regime Switching Log Normal (RSLN - Mary Hardy) (4) Stochastic Asset Model (Wilkie)

Practical Example Equity Models in use: (1) Regime Switching Log Normal (RSLN – CIA & SOA) (2) Stochastic Log Volatility (SLV - AAA) (3) Cox Ingersol Ross (being programmed in AXIS) Mary Hardy Paper

Practical Example Generate 5,000 EQUITY scenarios using AXIS to be used for pricing RSLN (2 regimes) (1) good regime (+ve return/ low volatility) (2) bad regime (-ve return/ high volatility)

Practical Example Computer Farm: AXIS GridLink - 32 processors - run times