CSTEP: Cluster Sampling for Tail Estimation of Probability
User’s Manual
CSTEP: Cluster Sampling for Tail
Estimation of Probability
Editor: Alan Chandler
Authors: Alan Chandler
Eric Brown
Nathan Wood
Temourshah
Ahmady
Faculty
Advisor:
Dr. James Schwing
Client: Dr. Yvonne Chueh
Due
Date:
03/07/11
Central Washington University
March 1, 2011
Contents
Table of Figures
Figure 1 CSTEP Installation Folder ................................................................................................................ 5
Figure 2 Browse to CSTEP ............................................................................................................................. 7
Figure 3 C STEP Start Page ............................................................................................................................ 7
Figure 4 CSTEP Main Page Select Universe ................................................................................................... 8
Figure 5 CSTEP Main Page Results Tab ......................................................................................................... 9
Figure 6 CSTEP Main Page Calculate Tab ...................................................................................................... 9
Figure 7 CSTEP Main Page Parameters Tab .................................................................................................. 9
Figure 8 Open File Message .......................................................................................................................... 9
Figure 9 CSTEP Documentation Page .......................................................................................................... 11
Figure 10 CSTEP About Page ....................................................................................................................... 12
Figure 11 CSTEP Return to Home Page Message ........................................................................................ 13
Figure 12 CSTEP Validation Universe Message ........................................................................................... 13
Figure 13 New Sampling Process Message ................................................................................................. 13
Figure 14 CSTEP Main Page Error Message ................................................................................................ 13
Introduction
Product Identification
Evaluating the adequacy of reserves is a critical problem for many businesses and insurance companies.
Valuation actuaries need to calculate the probability distribution of relevant financial random outcomes to solve these problems. Recently Dr. Yvonne Chueh, a mathematics professor at Central Washington
University developed a cluster sampling technique for probability tail estimation. Currently, actuaries implement these techniques in a spreadsheet that limits the size and speed of the calculations, perhaps by as much as several orders of magnitude for both. Therefore, Cluster Sampling for Tail Estimation of
Probability or CSTEP system is developed by a team of senior software engineering students at Central
Washington University based on Dr. Chueh’s proposal.
CSTEP system is a desktop-based application. Its main goal is to provide the actuaries with a more efficient tool. That in turn will provide stochastic models that are more accurate and reliable. It will allow statisticians, both actuaries and academicians to estimate and analyze the probability of a large block of business in a short amount of time. The output of this program, which will be cluster samples for tail estimation of probability, helps the valuation actuaries to analyze and guide decisions on economic values for various lines of business.
Document Preview
This document is the user’s manual for CSTEP system. It provides a step-by-step descriptions and guidance on how to use the CSTEP system. It can help any statisticians, both actuaries and academicians who want to use CSTEP system to quickly estimate and analyze the probability of a large block of business. This CSTEP user’s manual is organized into the following sections:
Installation: This section provides a step-by-step description and guidance on how to install the
CSTEP system.
Procedures: This section explains that what procedures are required and how to start the CSTEP program.
Step-by-step operations: This section gives a step-by-step description about what operations are performed by the CSTEP program.
Target Audience
The target audiences of this document are the project client and those who work as valuation actuaries evaluating the adequacy of reserves of insurance companies.
Client: Dr Yvonne C. M. Chueh is the CSTEP system client. She is an Associate Professor in the
Mathematics Department at Central Washington University.
End Users: All statisticians and actuarial experts who judge and evaluate a company’s financial strength can benefit from this application as it relates to projecting insurance financials on a stochastic interest rate.
Researchers: Researchers who are doing academic and industrial studies on actuarial sciences can also use our project.
Installation
System Requirements
Windows XP or higher.
Installation Instructions
1.
Find the place where you downloaded the CSTEP.zip in Windows Explorer.
2.
Double-click on the CSTEP.zip file.
3.
Drag the CSTEP folder in it to another folder.
4.
Open the CSTEP folder. You should see a file structure like figure 2.1.
5.
Double-click on the file labeled setup.
6.
The program may prompt you to install the .NET framework 3.5 or the Visual C++ redistributable. If it does, follow the on-screen instructions.
7.
Follow the on-screen instructions to finish installing CSTEP.
8.
Once it is installed, you can find it in the Start menu under “CSTEP”.
9.
If you want to, you can now delete the folder you dragged out of the CSTEP.zip file.
Uninstallation of CSTEP
To uninstall CSTEP either go to Add/Remove programs in control panel or run the setup.exe again from the directory where you originally unzipped it.
Program Operation
Steps to Use our Program:
A.
Beginning CSTEP:
1.
Browse to the location where you saved
CSTEP.
2.
Double-click the CSTEP folder.
3.
Double-click the CSTEP.exe executable file.
CSTEP Folder
B.
Home Page Basics
1.
After double-clicking the executable file you will be
Figure 2 Browse to CSTEP able to choose from one of many options: i.
Start a new sampling process. (New Sampling Process button) ii.
Continue a previous sampling process. (Previous Sampling Process button) iii.
View the documentation for our program. (Documentation button) iv.
View information about our team and this program. (About button) v.
Quit the program. (Quit button)
2.
Choosing the Start New Sampling Process button will lead you to CSTEP’s Main Page where you will begin calculation 1 .
3.
Choosing the Previous Sampling Process will take you to a slightly modified version of the Main
Page, which has been saved from previous runs of our program.
2
4.
Choosing the Documentation button will lead you to a page designed to better explain our program, and its uses.
3
5.
Choosing the About button will lead you to a page which describes our team members, and faculty behind this program.
4
6.
Choosing the Quit button will close the program.
1 See Part C: Start New Sampling
Process
2 See Part D: Previous Sampling Process
3 See Part E: Documentation Page.
4 See Part F: About Page
Figure 3 C STEP Start Page
C.
Start New Sampling Process
1.
The first step in beginning a new sampling process is to select a universe using the browse button. a.
This universe should be a .csv file that is local to your computer. b.
All further progress in this program will be determined by this universe.
2.
After choosing the universe you choose the starting row and column of your universe so as there is no problem with differences between .csv files. a.
This can be done either through selecting it from the universe or by typing in a row and column.
NOTE: You may view the universe at any time (after importing it) by clicking the view Universe
Button.
5
3.
Optional: Choosing an original ID column for your universe will tell our program where your scenario IDs are, otherwise they will be numbered from start row to the last row.
4.
Once this information has been entered our program verifies the data of the parameters you entered.
5.
You will then progress to the parameters tab of our program.
6.
On this tab you will enter information which pertains to the population (a subset of your Universe) you will run calculations on.
Browse
7.
Here you will enter information that
Defines your population such as: a.
Scenario Horizon b.
Population size
Select c.
Number of samples d.
Nested samples
Figure 4 CSTEP Main Page Select Universe e.
Sampling method i.
Depending on the method you also need a weight or constant values. f.
Optional: choosing an initial pivot
8.
After entering this information you will click the Calculate button which progress the focus to the processing tab. a.
This tab is solely an explanatory tab, which describes the progress the program has made in analyzing you population with the method chose.
9.
Once the program has completed running the selected method on your population you will be taken to the Results page which displays the samples which have been chosen along with their original IDs, and probabilities of each Scenario.
10.
Finally, you will be able to save the output from this run of our program wherever you choose.
5 See Figure 9 CSTEP View Universe
Figure 7 CSTEP Main Page Parameters Tab
Figure 8 Open File Message
Figure 6 CSTEP Main Page Calculate Tab
Figure 5 CSTEP Main Page Results Tab
D.
Previous Sampling Process
1.
This works the same as a new sampling process, although it saves the previous universe and population settings you chose.
2.
To work through this step refer to part C steps 6 through 10.
E.
Documentation Page
1.
This page will describe the methods that make this program work.
2.
Held within these documents are papers written by Dr. Yvonne Chueh and others which describe the methods used in our program.
3.
This page also links you to our team’s web site, and the Association of American Actuaries web page.
4.
Clicking on these links will either open an adobe reader which will display the pages, or open internet explorer to take you to the web sites.
Figure 9 CSTEP Documentation Page
F.
About Page
1.
This page gives a brief description of our Team, and Faculty Members, and also covers why we were put together.
Figure 10 CSTEP About Page
G.
Messages from the Program.
1.
The first message you will see is when you first start a new sampling process. a.
This will ask if you know enough information to begin using this program. From here you have a few options: i.
You can click Yes, which will take you to our Main Page, and will start you working on your sampling process. ii.
Or you can click No, which will open the Documentation page, which explains the methods program uses to choose samples. iii.
Or you can click Cancel, which closes this Message and returns focus to the
Start Page.
2.
The next message you may encounter is one pertaining to your universe. a.
This will inform you if your universe is of an incorrect format. i.
The error will explain what can be done to alleviate this problem, and you will be allowed to continue working once the problem is fixed.
3.
Other errors will pertain to improper textual input within text boxes through the next couple tabs on the Main Page.
Figure 14 CSTEP Main Page Error Message
Figure 13 New Sampling Process Message
Figure 12 CSTEP Validation Universe Message
Figure 11 CSTEP Return to Home Page Message
Glossary of Terms
Scenario:
A vector in h dimensional space which defines each value h on:
Interest rates
Stock return
Asset values
Universe:
A .csv file of your own creation which defines your scenarios and the number of scenarios
Population:
A subset of your Universe that our program will run calculations on with the method selected.
ID:
A unique identifier for each scenario
Sampling Process:
A process that finds the most extreme scenarios in a population
Horizon:
The size of each scenario
Samples:
The number of outputs from the sampling process
Euclidean Distance Method:
This method defines pivots using a single weight value defined by V. (See Paper for more Details)
Significance Method:
This method is the simplest, and assigns significance to each scenario, sorts them, and then uniformly chooses from the sorted list. Also this method uses a constant, 1, for C k
.(See Paper for more Details)
Present Value Distance Method:
This one defines pivots, like the Euclidean distance method, and selects scenarios based on these pivots.
This method also uses 1 for C k
.
Economic Value Distance Method:
This one defines pivots, like the Euclidean distance method, and selects scenarios based on these pivots.
Significance Method:
This method is the simplest, and assigns significance to each scenario, sorts them, and then uniformly chooses from the sorted list.
Pivot:
A sample produced by the Present Value Distance Method, the Economic Value Distance Method, and the Euclidean Distance Method.
Scenario Probability:
The probability that this scenario is likely to happen
