City Research Online

Modelling: The elephant in the room

Tsanakas, A. (2012). Modelling: The elephant in the room. The Actuary, 2012(Septem),


In an insurance world preoccupied with Solvency II, internal models have increased in both complexity and business significance. Nonetheless, actuaries are painfully aware of models’ limitations in representing the economic world, not least because of their reliance on often arbitrary assumptions. It is commonplace to say “all models are wrong but some are useful”. But in what sense might an internal model be wrong? If a model is wrong, how can it be useful? Significantly, what incentives does regulation produce for model development and use?

Publication Type: Article
Additional Information: Solvency II, model development, model limitations
Subjects: H Social Sciences > HA Statistics
H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
Departments: Bayes Business School > Actuarial Science & Insurance
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