M
Michael_JM86
Member
Hi ActEd,
Please can you help me understand the following parts of the solution.
1) “The definition of a range of best estimates includes model and parameter error, but excludes process error”. Does include mean make an allowance for? If so, does it allow for model and parameter error by allowing the actuary to choose their own model and parameters, which could be incorrect? Why does it not include process error? I thought there was always some prices error.
2) “Bootstrapping captures parameter error and process error, but not model error”. How are parameter and process error capture? Is model error not included because bootstrapping uses the same model over and over again, so it doesn’t take into account alternatives and as such doesn’t take into account the model may be wrong? I understand the definitions of the errors but I am struggling to apply the concepts and determine whether they are present in a given situation.
Many thanks,
Michael
Please can you help me understand the following parts of the solution.
1) “The definition of a range of best estimates includes model and parameter error, but excludes process error”. Does include mean make an allowance for? If so, does it allow for model and parameter error by allowing the actuary to choose their own model and parameters, which could be incorrect? Why does it not include process error? I thought there was always some prices error.
2) “Bootstrapping captures parameter error and process error, but not model error”. How are parameter and process error capture? Is model error not included because bootstrapping uses the same model over and over again, so it doesn’t take into account alternatives and as such doesn’t take into account the model may be wrong? I understand the definitions of the errors but I am struggling to apply the concepts and determine whether they are present in a given situation.
Many thanks,
Michael