why dfa is like sushi cas dynamic financial analysis 1998 special interest seminar july 13-14, 1998...

Why DFA Is Like SushiCAS Dynamic Financial Analysis

1998 Special Interest SeminarJuly 13-14, 1998

Boston Marriott Copley PlaceBoston, Massachusetts

William C. Scheel

DFA Technologies, LLCscheel@mindspring.com

Using Components in DFA

• Microsoft Excel as its own component

• Divide and conquer model disaggregation with components

• Optimization and cell accumulation

Advantage of Excel Components

• Independent calculation of model parts

• Easy transfer of cell ranges among components

• Asset and liability components

• Easier to understand and maintain

• Visual Basic for Applications (VBA)

Reinsurance Components

• Probability distribution censoring

• Accumulator and limits of liability testing

• Aggregate excess of loss models

• Price complex transfer agreements

• Deal-to-Company aggregation

• Optimization of limits of liability

The Turing Test for DFA

Can Your DFA System Price This?No claim shall be made under this Contract for any accident year unless and until the Company shall have first incurred an amount of ultimate net loss on business covered during the accident year in excess of the greater of $10,000,000 or 80.0% of its net earned premium for the accident year. The Reinsurer shall then be liable for 95.0% of the amount by which the Company’s ultimate net loss exceeds its retention, but the liability of the Reinsurer shall not exceed 95.0% of the lesser of $2,000,000 or 15.0% of the Company’s net earned premium for the accident year under consideration. In addition to its initial retention, the Company shall retain, net and unreinsured elsewhere, 5.0% of the excess ultimate net loss to which this Contract applies.

Scenario Generation with Components

• Seriatim-based simulation

• Portfolios of component parts right down to the individual policy and investment security

• Remember random variates and intermediate calculations using component snap shots

Optimization Using Excel and Components

• Goals and constraints can be complex objects in different workbooks

• Multiple computers can be used for a single problem

• Gradient search mechanisms can have goal functions using frequency-severity convolution or chance-constrained probability requirements

Database Components

• Use ADO (ActiveX Data Objects)

• Virtual general ledgers and accounting components

• Create palettes of graphical and tabular objects

• Program database components with Visual Basic for Applications

The Gestalt of Sushi and DFA

• A system so integrated it’s not derivable from its parts in summation

• You must appreciate the whole before the parts make any sense

• Gochiso-sama