| SOA真题Course8V |
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COURSE 8: Fall 2005 - 1 - GO TO NEXT PAGE
Investment
Morning Session
**BEGINNING OF EXAMINATION**
INVESTMENT
MORNING SESSION
Questions 1-4 pertain to the Case Study
1. (6 points)
(a) Assess the consistency of the definition of a derivative in LifeCo’s operational
guidelines with the definition under US GAAP.
(b) Describe how LifeCo’s Derivative Policy addresses operational and legal risks.
(c) Recommend additional controls to better address these risks.
COURSE 8: Fall 2005 - 2 - GO TO NEXT PAGE
Investment
Morning Session
Questions 1-4 pertain to the Case Study
2. (5 points) A new actuarial student at LifeCo is very excited about the "profit" your
portfolio is generating with MBS. He views "profit" on an MBS bond as the difference
between OAS and the liability required interest spread over Treasuries.
(a) Explain why "profit" may not equal the difference between OAS and the required
interest spread with a Jump Z-bond.
(b) Explain why "profit" may not equal the difference between OAS and the required
interest spread for more general securities.
The student recommends that LifeCo could be more profitable and better durationmatched
by replacing the current MBS within the Traditional Life portfolio with Zbonds.
Z-bonds, the student argues, have a higher OAS, higher duration, and lower
convexity than the current MBS.
(c) Evaluate this recommendation.
COURSE 8: Fall 2005 - 3 - GO TO NEXT PAGE
Investment
Morning Session
Questions 1-4 pertain to the Case Study
3. (13 points) LifeCo’s management is concerned by the losses arising from the dynamic
hedging of the options embedded in its variable annuities. An external report highlighted
that the target delta is currently based on a lognormal distribution with the volatility equal
to the sample standard deviation of the fund investment return over the past 12 months.
(a) Describe the options embedded in the variable annuity product.
(b) Describe and compare the following models used to estimate the volatility from
past data
(i) sample standard deviation
(ii) exponentially weighted moving average model
(iii) generalized auto-regressive conditional heteroscedasticity
(c) Recommend ways to improve the dynamic hedging program.
(d) Describe strategies that can be used to minimize the model risk.
LifeCo is considering whether to continue its current dynamic hedging program or pursue
another risk management strategy.
(e) Review alternative strategies for managing the embedded option exposure.
(f) Recommend which of these strategies would be most appropriate if the dynamic
hedging strategy is discontinued. Justify your recommendation.
COURSE 8: Fall 2005 - 4 - GO TO NEXT PAGE
Investment
Morning Session
Questions 1-4 pertain to the Case Study
4. (10 points) You have recently been promoted to Chief ALM Officer at LifeCo. The
CEO has called a meeting with you and the pricing actuary to discuss the launch of a new
universal life product.
(a) (2 points) The CEO, an accountant by training, emphasizes the importance of
statutory and GAAP measures to determine the economic value of the insurer.
Critique this standpoint.
(b) (4 points) Explain how to coordinate LifeCo’s investment and product
management strategies for future retentions for this new product to protect
LifeCo’s shareholder value from interest rate risk.
(c) (1 point) The pricing actuary expects to increase future credited rates as interest
rates rise. Explain how LifeCo’s investment strategy should be adjusted to
protect shareholder value from interest rate risk.
(d) (1 point) LifeCo’s key competitors keep credited rates unchanged regardless of
changes in interest rates. Assess how their approach could affect your strategy in
part (c).
(e) (2 points) Propose a method for LifeCo to implement the changes in parts (c) and
(d) that would minimize transaction costs.
COURSE 8: Fall 2005 - 5 - GO TO NEXT PAGE
Investment
Morning Session
5. (7 points) The table below has the 10 largest capital requirements at issue from 100
scenarios for a variable annuity with a GMDB of a return of premium. Requirements are
given for the real world and risk-neutral approaches. A negative value indicates a
surplus.
Approach
Real
World -0.35% -0.30% -0.25% -0.10% -0.10% -0.10% -0.10% 0.40% 1.10% 2.70%
Risk-
Neutral -0.30% -0.28% -0.26% -0.24% -0.21% -0.17% -0.10% 0.00% 0.20% 0.40%
Based on this data, the CEO suggests allocating capital based on the real world approach
at a quantile of 91% but if the market performs poorly to switch to the risk-neutral
approach with a CTE at 95%.
(a) Define the quantile risk measure.
(b) Calculate the 91% and 95% quantile measures for each approach.
(c) Define the CTE risk measure.
(d) Calculate the 91% and 95% CTE measures for each approach.
(e) Calculate the standard error for a 64% confidence interval for the 95% quantile
risk measure under the actuarial approach.
(f) Appraise the CEO’s suggested mix strategy
COURSE 8: Fall 2005 - 6 - GO TO NEXT PAGE
Investment
Morning Session
6. (4 points) You have been given the following assumptions for one of AnnuityCo’s fixedincome
asset portfolios:
Obligor (A) Loss Given
Default
(LGDA)
Expected Loss
Over the Next Year
(ELA)
1 165,000 660
2 235,000 940
3 700,000 1,050
4 900,000 1,800
Total 2,000,000 -
Unit of exposure for banding L = 100,000
One-year risk-free rate r = 3%
(a) Using the Actuarial Approach (CreditRisk+) to measuring credit risk, calculate
the probability that the loss occurring over the next year is 300,000 or less.
(b) A colleague has suggested that the CreditRisk+ approach avoids the limitations of
the CreditMetrics and KMV approaches. Evaluate this comment.
COURSE 8: Fall 2005 - 7 - GO TO NEXT PAGE
Investment
Morning Session
7. (4 points) You are on assignment with the portfolio management team that has been
investing in equities primarily in the USA. The team is interested in implementing an
expanded international equity strategy.
Identify the issues you should consider prior to investing in countries or markets with
which you are not familiar.
COURSE 8: Fall 2005 - 8 - GO TO NEXT PAGE
Investment
Morning Session
8. (6 points) You are given the following securities for a 1-year period:
Security Price Payoff in
“Up” State
Payoff in
“Down” State
A 1 1.5 0.7
B 15/11 2 1
C ? 1.8 0.85
Calculate the price of Security C.
COURSE 8: Fall 2005 - 9 - STOP
Investment
Morning Session
9. (5 points) CMP Life’s marketing group is introducing a new product that allows the
policyholder to allocate premiums between an accumulation fund and a payout annuity.
Premium inflow $20 million per month
Accumulation fund 35% investment grade convertible bonds
65% investment grade corporate bonds
Payout annuity 20 year certain, level payments
(a) List the assumptions you would need from the pricing actuaries to help you
construct investment guidelines for the investment managers.
(b) Describe the information you will provide to the investment managers on an ongoing
basis.
(c) Explain whether a benchmark of the universe of all convertible securities
(including both investment and non-investment grade) would be appropriate for
the accumulation portion of the portfolio.
(d) Describe the considerations you would have to make when instructing the asset
managers if CMP Life stops selling this product after 10 years and there are no
additional premiums.
**END OF EXAMINATION**
MORNING SESSION
COURSE 8: Fall 2005 - 1 - GO TO NEXT PAGE
Investment
Afternoon Session
**BEGINNING OF EXAMINATION**
INVESTMENT
AFTERNOON SESSION
Beginning With Question 10
10. (7 points) You are the Chief Risk Officer for a US life insurance company which owns a
portfolio of corporate bonds. The ALM committee has proposed a reduction in the credit
exposure of their portfolio through the use of derivatives. You have been asked to
analyze 4 potential solutions:
(i) Asset Swaps
(ii) Single Name Default Swaps
(iii) Basket Default Swaps
(iv) Portfolio Default Swaps
(a) (5 points) Describe each derivative and the advantages and disadvantages of
each.
(b) (2 points) Assuming you decide to recommend a default swap, outline the
accounting considerations.
COURSE 8: Fall 2005 - 2 - GO TO NEXT PAGE
Investment
Afternoon Session
11. (6 points) Over the past several days, ABC Corporation’s stock has been trading
around $25.50.
You are given the following financial information for ABC Corporation.
Net Income 250,000
Goodwill Amortization 40,000
Interest Expense 45,000
Capital Expenditures 30,000
Tax Rate 35%
Company Beta 1.2
Risk-Free Rate 6.0%
Market Risk Premium 5.0%
Market Value of Debt 2,000,000
Pre-Tax Cost of Debt 10.0%
Estimated Perpetual Growth Rate of Cashflows 4.0%
Number of Shares Outstanding 100,000
ABC’s capital structure is 20% debt and 80% equity.
Use the economic model approach to calculate ABC’s market value per share and
determine whether or not the share price is currently over- or under-valued.
COURSE 8: Fall 2005 - 3 - GO TO NEXT PAGE
Investment
Afternoon Session
12. (4 points) You are given the projected liability cash flows of a company and decide to
use the direct method to calculate its fair value. The discount rate used in your initial
calculation was determined as the risk-free rate plus the credit spread[1] [2] 下一页 |
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