8 October 2008 www.the-actuary.org.uk
Letters Your view
Letters to the editor
In which actuaries, not unlike the rest of the UK population, discuss the weather,
the credit crunch, and the merits of various models
Letter of the month - "A"
"A" stands for Actuarial Community Development Committee.With
actuaries spread across our business, our ACD Committee ensures all
actuarial colleagues receive the right training and development to fulfill
their potential. If this focus on career progression sounds attractive to
you, find out more by emailing actuaryopportunities@hbosplc.com
Equal opportunities for all - our policy is as simple as that.
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Silent majority
The letters pages of The Actuary have been
largely anti-merger, yet the Faculty survey
and the Institute vote have been pro-merger
by large majorities of those sufficiently
motivated to vote. Perhaps it is a classic case
of the silent majority, where those who are
against something are more vociferous than
those who are content with it.
There will always be some people who
cannot be persuaded, no matter how much
we try to accommodate them -- and we are
trying very hard. However, I appeal to those
who voted against to take note of the sizes
of the majorities, and to join us to create a
strong, unified base on which to build the
UK Profession for the 21st century.
Stewart Ritchie
1 September 2008
Last year's model
Congratulations to Solomon Green on his
cautionary article on financial modelling
(The Actuary, September 2008). I do wonder,
however, whether it is only those with long
experience of investment markets, and less
immersion in sophisticated mathematical
techniques, that
really appreciate
the dangers of an
uncritical mindset
with respect to
basic statistical
assumptions of
normality. The
quotation from
Eugene Fama
about extremal
events, alleged
to be due only
every 7000
years, being prone to arise somewhere every
three or four years, is hardly an overstatement.
The recent disruption in credit markets is only
the latest example.
For those who feel a need to
delve into this subject in more
depth, I strongly recommend
a book by Benoit Mandelbrot
and Richard Hudson entitled
The (Mis)behaviour of Markets.
This provides a readable
critique of many of the basic
assumptions underlying
parts of financial economics,
as conventionally practised, and leaves no
doubt as to the potential hazards of failing
adequately to allow, in projections based on
financial markets, for much more frequent
occurrence of extremal events. While the
alternatives, in terms of ways forward, are
rather lightly sketched in, they may also
provide some stimulus to future research.
I am not intending to suggest that financial
modelling should be abandoned, only that the
underlying assumptions in the input need much
more critical examination than they often seem
to get. Otherwise there is a significant risk of the
results from the use of very poorly anchored
models being treated almost as some form of
holy writ, with potentially fatal consequences
from a business management standpoint.
John Bishop
31 August 2008
Weather or not
I was interested to read the articles on
climate change and energy resources in the
July 2008 issue of The Actuary.
Some readers will recall the use of Spencer's
21-term formula for the graduation of life
tables. Some rather similar formulae have
been developed for smoothing time series
with seasonal variations (see Herbert and
Scott, Scandinavian Actuarial Journal (2006),
p368-377), and have applied some these
formulae (with additional calculations to
deal with the tails) to the annual Global
Temperature Anomaly 1950-2007, as published
by the Financial Times on 3 June (I do not
have access to the original data and used a
ruler to estimate the heights in the published
figure). The smoothing formulae used were
developed for data with period 4 and it is
not claimed they are especially suitable for
scientific data of this kind, though the series is
The right direction
With reference to your editorial on actuaries in the banking sector (The Actuary, September
2008), I got my first degree in Actuarial Science and subsequently started pursuing the
professional qualification. Presently, I work in a commercial bank, where the skills of an
actuary are not fully appreciated.
When colleagues asked about my course of study, my response sounded so bizarre. Some
retorted, "Did you say `architectural science' or `aquarium science'?"
However, I am glad I was able to educate them on the profession and, to a great extent,
I can say a good number of my colleagues now have an appreciation for a course they had
never heard about before they met me.
Today, whenever they have a need to perform statistical analysis on the job, they do not
fail to call me in for help. After such events, some of them cannot but ask, "How come
we have never heard of such a course before now, since it seems so integral to financial
applications?" My response, after a smile, is always: "It was never meant to be a popular
one. Actuaries are the directors behind the movies, which you never get to see. You only
see the actors often but the directors determine the outlook of the movie."
Miller Kingsley
14 August 2008
The writer of the letter of the month receives a
Venecia fountain pen kindly supplied by HBOS
Letter of the month
n:
the dangers of an
uncritical mindset
July 2008 issue of
21-term formula for the graduation of life
tables. Some rather similar formulae have
been developed for smoothing time series
with seasonal variations (see Herbert and
Scott,
p368-377), and have applied some these
formulae (with additional calculations to
deal with the tails) to the annual
Temperature Anomaly 1950-2007
by the
have access to the original data and used a
ruler to estimate the heights in the published
figure). The smoothing formulae used were

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