GENERATING SCENARIOS FOR GLOBAL FINANCIAL-PLANNING SYSTEMS

Global financial planning requires representative scenarios drawn from stochastic forecasting systems such as Russell's vector autoregressiv e model, Wilkie's cascade approach, Towers Perrin's global CAP:Link, a nd the catastrophic event simulations for earthquakes and hurricanes. We discuss the role of a dynamic forecasting system in the context of asset and liability management. We also describe a quasi-random sampli ng procedure for maximizing the precision of recommendations derived f rom a dynamic decision strategy. Empirical results, for a large offsho re reinsurance company over a 5 year planning horizon, show the benefi ts of careful scenario selection. (C) 1998 Elsevier Science B.V.