Vol 11 2011

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In subsequent worka long-term equilibrium model is developed and parameterisedfor the South African market. The aim of this paper is to apply thelatter model to the pricing method with a view to quantifying theeffects of non-additivity due to incompleteness, guaranteesimplicit in reasonable expectations of pension increases and the sensitivity of the price of illustrative liabilities to the parametersof the model. The application is to retirement-fund benefits inthe South African market. In an unpublished application of thepricing method it was found that, except for quite short-termliabilities, the computational demands of the pricing algorithmbecame excessive. The main reason for this was that thealgorithm calls for simulations within simulations: for each yearof the term of liabilities, a large number of simulationsis required, and for each such simulation another largenumber of simulations is required. In this article considerationis given to the reduction of the computational demands of the algorithm. The arbitrage-free equilibrium pricing 623kb THE CAPITAL-ASSET PRICING MODEL: THE CASE OF SOUTH AFRICA By TL Reddy and RJ Thomson ABSTRACT This paper tests the empirical validity of the capital-asset pricing model (CAPM) for the South African share market. For the investigation, quarterly total returns from ten sectoral indices listed on the JSE Securities Exchange from 30 June 1995 to 30 June 2009, were used. As expressed in the securities market line, the CAPM suggests that higher risk, as measured by beta, is associated with higher expected returns. In addition, the theoretical underpinnings of the CAPM are that it explains expected excess return, and that the relationship between expected return and beta is linear. In this investigation the above-mentioned predictions of the CAPM were tested. Direct tests of the securities market line were made, using both prior betas and in-period betas. A nonparametric test was also made. Regression analysis was used to test hypotheses based on both individual sectoral indices and portfolios constructed from those indices according to their betas. These tests were made for individual years as well as for all periods combined. It was found that while, on the assumption that the residuals of the return-generating function are normally distributed, the CAPM could be rejected for certain periods, the use of the CAPM for long-term actuarial modelling in the South African market can be reasonably justified. The capital-asset pricing model 632kb PROMOTING QUALITY IN THE ACTUARIAL ASSESSMENT OF QUANTUM OF DAMAGES IN SOUTH AFRICA By MW Lowther ABSTRACT This paper applies a quality framework theory to a field of actuarial practice. The paper is relevant to the professionalism of actuaries in general, and to those who assess the quantum of damages in particular. Quality framework theories propose that practitioners need to apply a range of technical and normative capabilities to provide a quality professional service. This paper suggests the various Capabilities that are needed by actuaries in the field of assessment of the quantum of damages, and orders them by applying a quality framework. A methodology for practitioners to benchmark the quality of their practice is outlined. In South Africa, there is no formal curriculum, canon, or specific guidance for actuaries practising in this field. The paper therefore also contributes to the professionalisation of the field by reviewing and recording relevant literature, and provisionally filling gaps in it from personal experience of the author as practitioner in this field. The paper concludes by suggesting that this approach could also help professionalise other fields of actuarial practice. Promoting quality in the actuarial assessment 262kb DAMAGES FOR PERSONAL INJURY AND DEATH: LEGAL ASPECTS RELEVANT TO ACTUARIAL ASSESSMENTS by RJ Koch ABSTRACT In this paper the actuarial assessment of damages for personal injury and death is discussed in the context of South African law. The legal framework imposes a variety of calculation rules that need to be born in mind if an actuary is to produce a quality product. This framework changes with the passage of time. The purpose of the paper is to summarise the current state of affairs and highlight issues deserving of further actuarial discussion. Damages for personal injury and death 289kb Editorial LONG RUN SE VOET: DEBUNKING THE MANTRA OF THE EQUITY CULT An oft-repeated mantra of the investment-management world is: “In the long run equities will outperform bonds.” A slightly modified version is: “In the long run equities are expected to outperform bonds.”1 Sometimes ‘bonds’ becomes ‘cash’ or ‘bonds and cash’. The first version is patently incorrect. The second is misleading. I find these statements embarrassing, especially when they are used by actuaries to justify ‘lifestyle strategies’ for defined-contribution (DC) retirement funds. Editorial 367kb ABSTRACTS OF RECENT POSTGRADUATE THESES AND DISSERTATIONS AT SOUTH AFRICAN UNIVERSITIES Abstracts of recent postgraduate theses 191kb ABSTRACTS OF ARTICLES IN OTHER SOUTH AFRICAN JOURNALS INVESTMENT ANALYSTS JOURNAL Thupayagale, P (2010). Evaluation of GARCH-based models in value-at-risk estimation: evidence from emerging equity markets. IAJ 72, 13–29 This paper evaluates the forecasting performance of a range of volatility models in value-at-risk (VaR) estimation in the context of the Basle regulatory framework using equity-index return data from a selection of emerging markets. It extends the current research in these economies by including a range of generalised autoregressive conditional heteroskedastic (GARCH) models and their long memory extension, in addition to some standard statistical methods often used by financial institutions. The results suggest that models with long memory or asymmetric effects are important considerations in providing improved VaR estimates that minimise occasions when the minimum capital requirement identified by the VaR process would have fallen short of actual trading losses. In addition, the results highlight the relevance of the Basel regulatory framework, and of using out-of-sample forecast evaluation methods for the identification of forecasting models that provide accurate VaR estimates. Abstracts of articles in other South African journals 243kb CUMULATIVE INDEX Cumulative index 211kb
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