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Yet More on a Stochastic Economic Model: Part 1: Updating and Refitting, 1995 to 2009

Author

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  • Wilkie, A. D.
  • Åžahin, Åžule
  • Cairns, A. J. G.
  • Kleinow, Torsten

Abstract

In this paper we review the Wilkie asset model for a variety of UK economic indices, including the Retail Prices Index, both without and with an ARCH model, the wages index, share dividend yields, share dividends and share prices, long term bond yields, short term bond yields and index-linked bond yields, in each case by updating the parameters to June 2009. We discuss how the model has performed from 1994 to 2009 and estimate the values of the parameters and their confidence intervals over various sub-periods to study their stability. Our analysis shows that the residuals of many of the series are much fatter-tailed than in a normal distribution. We observe also that besides the stochastic uncertainty built into the model by the random innovations there is also parameter uncertainty arising from the estimated values of the parameters.

Suggested Citation

  • Wilkie, A. D. & Åžahin, Åžule & Cairns, A. J. G. & Kleinow, Torsten, 2011. "Yet More on a Stochastic Economic Model: Part 1: Updating and Refitting, 1995 to 2009," Annals of Actuarial Science, Cambridge University Press, vol. 5(1), pages 53-99, March.
    • Handle: RePEc:cup:anacsi:v:5:y:2011:i:01:p:53-99_00
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    Cited by:

    1. c{S}ule c{S}ahin & Shaun Levitan, 2019. "A Stochastic Investment Model for Actuarial Use in South Africa," Papers 1912.12113, arXiv.org, revised Jan 2021.
    2. Sergio Alvares Maffra & John Armstrong & Teemu Pennanen, 2020. "Stochastic modeling of assets and liabilities with mortality risk," Papers 2005.09974, arXiv.org.

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