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Old 05-11-2020, 02:26 PM
kwanken97 kwanken97 is offline
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Default Analysing independent risk sources

Hi, hope anyone can help me

According to A framework for assessing risk margins by (Marshall) - analysing independent risk sources

"A good stochastic model will fit the past data well and, in doing so, fit away most past systemic episodes of risk external to valuation process, leaving behund largely random sources of uncertainty"

I do not understand why a good model fit the past data will fit away most past systemic episodes of risk? Can show me example?

Thank you!
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Old 05-18-2020, 04:56 PM
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AbedNadir AbedNadir is offline
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Quote:
Originally Posted by kwanken97 View Post
Hi, hope anyone can help me

According to A framework for assessing risk margins by (Marshall) - analysing independent risk sources

"A good stochastic model will fit the past data well and, in doing so, fit away most past systemic episodes of risk external to valuation process, leaving behund largely random sources of uncertainty"

I do not understand why a good model fit the past data will fit away most past systemic episodes of risk? Can show me example?

Thank you!
past systemic episodes are like inflation, if you use a calendar year parameter in a GLM then you are fitting this away. there is still residual randomness because you aren't predicting perfectly, so this is the independent risk source
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Old 05-31-2020, 05:08 AM
kwanken97 kwanken97 is offline
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Quote:
Originally Posted by AbedNadir View Post
past systemic episodes are like inflation, if you use a calendar year parameter in a GLM then you are fitting this away. there is still residual randomness because you aren't predicting perfectly, so this is the independent risk source
Alright noted and understand.

Thanks !
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