Generating scenarios for global financial planning systems

Global financial planning requires representative scenarios drawn from stochastic forecasting systems such as Russell's vector autoregressive model, Wilkie's cascade approach, Towers Perrin's global CAP:Link, and 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 sampling procedure for maximizing the precision of recommendations derived from a dynamic decision strategy. Empirical results, for a large offshore reinsurance company over a 5 year planning horizon, show the benefits of careful scenario selection.