Hi, In capital Modelling chapter -Steps in running a deterministic model choose the form of the model, identifying its parameters and variables "Parameters are any factors which would affect the decisions we make as a result of running the model. For example, if investment returns influence the premium charged then investment return is a parameter. Variables are the factors we are trying to test when running the model. For example, if we are setting the premiums for a product, then the premium is the variable." I understand Parameters are values assumed in our modelling ex. Interest rate, Inflation rate which will affect our results. However, I am not able to distinguish between variable & Parameters. Please guide
I think what they're trying to say is that variables are things which the company can control (e.g. how much business to write) and parameters are things which the company cannot control (e.g. investment returns). Parameters it appears are defined as specific model inputs which don't change, whereas you can change the variables to test the effect on the output.
Suppose you're modelling an inflation index using a time series. Then the parameters are the parameters of the time series and the variables are the values of the inflation index.
