Hi, i am studying the above two questions that are related with UL and their gtees. April 16 Q3 refers to a market consistent liability and in the stochastic simulation the solution makes reference to: 1. risk- free returns and 2. investment return volatilities that reflect the actual assetss inthe unit funds so far so good. on the other hand Sep 14 Q2 mentions: 1. project unit funds realistically. are these two equivalent or the realistically refers to sth else (eg real world) and if so why ? Thanks D
Hi In short, the two approaches look to be different. The 2014 question appears to be open and I suspect any reasonable approach (eg based on market consistent principles or a more traditional / actuarial approach based on a realistic projection) would’ve been acceptable. The 2016 question, which coincidentally would’ve been set post the introduction of S2 (a market consistent regime) specifically asked for a market consistent approach. Hope that helps