D - CIA Models

Question 1

CIA MODELS

Describe what an actuary does when validating a model’s IMPLEMENTATION (5)

Answer 1

1. Compare with other tested models
2. Maintain a set of test cases
3. Backtesting (testing with historical data where you already know the answer)
4. Run an entire live file through successive versions of the model (for model with a higher risk-rating)
5. Peer review of testing procedure

Question 2

CIA MODELS

3 types of validations that should be done when using a model

Answer 2

DAR: validation of Data, Assumptions & Results

• Data should be Reliable & Sufficient
• Validate non-global assumptions that vary by model run
• Results should be “reasonable” relative to input