The maximum entropy mortality model: forecasting mortality using statistical moments

ABSTRACT

The age-at-death distribution is a representation of the mortality experience in a population. Although it proves to be highly informative, it is often neglected when it comes to the practice of past or future mortality assessment. We propose an innovative method to mortality modeling and forecasting by making use of the location and shape measures of a density function, i.e. statistical moments. Time series methods for extrapolating a limited number of moments are used and then the reconstruction of the future age-at-death distribution is performed. The predictive power of the method seems to be net superior when compared to the results obtained using classical approaches to extrapolating age-specific-death rates, and the accuracy of the point forecast (MASE) is improved on average by 33% respective to the state-of-the-art, the Lee–Carter model. The method is tested using data from the Human Mortality Database and implemented in a publicly available R package.     

A tool for accessing accounting cases

The utilization of cases in accounting education has increased significantly in the past two decades and the number of sources of these cases has also grown larger. Accounting faculty wanting to use cases from these sources are hindered in their ability to do so because of the lack of a central case clearinghouse. The data collection underlying this paper is designed to alleviate this problem. A computerized database of accounting cases is offered to anyone free of charge. The intent is to provide a functionally useful index that will help faculty locate cases for use in their accounting classes. This article explains how faculty can access and use this database. In addition, cases published between 1983 and 2003 in two accounting education journals are summarized in order to provide an overview.     

A Case-Based Reasoning System for Indirect Bank Lending

By implementing case-based reasoning (CBR) systems, business organizations can utilize past cases—a key data resource—for future decision making. CBR is particularly suitable for business domains that have available a large amount of historical data. One such domain is indirect bank lending. In this paper, we present a case-based system that operates in the bank lending domain. The system recommends whether an indirect loan application should be approved or denied, based on past experiences. We describe how the system was developed and explain how the system functions. The system was empirically evaluated using actual loan cases. The positive results of the evaluation confirm our hypothesis that CBR is an attractive decision-making methodology for the bank lending domain.     

GAAP versus The Street: An Empirical Assessment of Two Alternative Definitions of Earnings

Managers, security analysts, investors, and the press rely increasingly on modified definitions of GAAP net income, known by such names as "operating" and "pro forma" earnings. We document this phenomenon and discuss competing explanations for the recent rise in the use of such modified earnings numbers and implications for the interpretation of related accounting research. Our results show that over the past 20 years there has been a dramatic increase in the frequency and magnitude of cases where "GAAP" and "Street" earnings differ. Further, there is a very strong bias toward the reporting of a Street earnings number that exceeds the GAAP earnings number. We also show that the market response to the Street earnings number has displaced GAAP earnings as a primary determinant of stock prices. Finally, through an analysis of earnings releases, we show that management has taken a proactive role in defining and emphasizing the Street number when communicating to analysts and investors.     

SCAN: A Case-Based Reasoning Model for Generating Information System Control Recommendations

This paper describes SCAN, a case-based reasoning model for generating information system control recommendations. The purpose of the paper is to explain how a case-based reasoner may be used to support inexperienced information system auditors in evaluating controls and proposing audit recommendations. As a case-based reasoner, SCAN functions by reasoning by analogy to similar past cases. SCAN models audit experience as traces of past cases which are stored in a case knowledge base. In addition to a database of past audit cases, SCAN consists of indices for storing and retrieving cases, a similarity metric for measuring case similarity, and rules for using similar cases to generate control recommendations. SCAN uses past cases to remind the user of previous control failures, to set expectations about case features and controls, to use as a pattern against which to compare a client's controls and to help justify or explain its recommendations. SCAN's recommendations were judged to be more like those of an experienced auditor than either a student or a textbook model.     

Risk Management Failures: What Are They and When Do They Happen?

The difficulties of the past year have convinced many observers that current risk management practices are deeply flawed, and that such flaws have contributed greatly to the current financial crisis. In this paper, the author challenges this view by showing the need to distinguish between flawed assessments by risk managers and corporate risk‐taking decisions that, although resulting in losses, were reasonable at the time they were made. In making this distinction, the paper also identifies a number of different ways that risk management can fail. In addition to choosing the wrong risk metrics and misidentifying or mismeasuring risks, risk managers can fail to communicate their risk assessments and provide effective guidance to top management and boards. And once top management has used that information to help determine the firm's risk appetite and strategy, the risk management function can also fail to monitor risks appropriately and maintain the firm's targeted risk positions. But if risk management has been mistakenly identified as the culprit in many cases, current risk management practice can be improved by taking into account the lessons from financial crises past and present. In particular, such crises have occurred with enough frequency that crisis conditions can be modeled, at least to some extent. And when models reach their limits of usefulness, companies should consider using scenario planning that aims to reveal the implications of crises for their financial health and survival. Instead of relying on past data, scenario planning must use forward‐looking economic analysis to evaluate the expected impact of sudden illiquidity and the associated feedback effects that are common in financial crises.     

On the Value of Transparency in Agencies with Renegotiation

In this paper we study when it is advantageous to improve corporate transparency by allowing shareholders direct access to corporate information and when it is preferable to rely on a reporting system in which shareholders only gain access to information that management chooses to disclose. We show that in an agency model that allows for contract renegotiation, the desirability of a fully transparent reporting regime hinges on the stewardship properties of the information in question. Specifically, information that is mainly useful for predicting future events and of little use for evaluating past actions should only be made available to the public through management's self‐interested disclosures. Only if the information is useful for making inference about managerial actions can it be optimal to have full corporate transparency, so that outsiders have independent access to the same information as management.     

The ‘Plateau‐ing’ of the European Better Regulation Agenda: An Analysis of Activities Carried out by the Barroso Commission

In this paper we examine cases commonly characterised as risk‐risk tradeoffs (i.e., creating new risks while solving existing ones), in an attempt to learn lessons that can be valuable for future regulatory decision‐making. A broad range of environmental and health literature was reviewed and numerous cases of proclaimed risk‐risk tradeoffs were analysed in order to determine: 1) why regulatory measures were initially taken, 2) why these measures caused a countervailing risk to emerge, 3) how tradeoffs could have been avoided, and 4) whether the case is a good example of a risk‐risk tradeoff. The analysis reveals that only a small number of these cases can actually be considered risk‐risk tradeoffs. In a large number of cases safer alternatives are and were available at the time decisions were made. In some cases the proclaimed risk‐risk tradeoff simply did not exist or occur, and in some cases countervailing risks were ignored for reasons unknown. In many cases, the countervailing risks could have been anticipated and avoided by proactively seeking safer alternatives, completing a tradeoff and impact assessment, or increasing stakeholder input in the decision‐making process. We conclude that concerns about risk‐risk tradeoffs are not a reasonable argument against future application of the precautionary principle. Indeed, sound decision‐making processes in the face of uncertainty should always consider and attempt to mitigate reasonable risk‐risk tradeoffs.     

Liquidate Or Trade Out? An Expert System To Explain The Decision Process

The decision to liquidate or trade out a company in financial distress requires considerable judgment by a provisional liquidator or administrator. While some general procedures and guidelines are available, there is no explicit framework to assist a provisional liquidator or administrator in making a recommendation to liquidate or trade out. This paper reports on the development of an expert system as a method of studying the judgments made by provisional liquidators or administrators in cases of corporate financial distress. The results reveal the major factors that are assessed in making a liquidate or trade-out decision, and support recent calls for expanding the type of information provided by traditional accounting systems.     

The future of futures decision making

At the dawn of a new millennium, with the past one thousand years ready for reflection and the up-coming one thousand years primed for exciting new adventures, humankind seems to be trapped in the box of myopic, short-term decision making. Voices pleading to expand the horizons of our decision making to ensure sustainability of our species and countless other species on this earth are currently drowned out by a cacophony of voices trumpeting economic globalization, rapid technology development, and real-time financial markets. While futures decision making is not much in evidence today, the question addressed by this paper is whether futures decision making is even possible. Are there inherent constraints in our ability to make decisions that encompass time frames covering centuries if not millennia? An enormous amount of research has been conducted in the general area of decision making over the past several decades. Much has been learned about the psychology of human decision making and decision making within organizations. Countless methods have been developed to guide decision making. Recent work in areas such as imprecise probability and complex adaptive systems is beginning to provide boundaries as to what can be known about the future. This paper reviews much of this diverse literature and synthesizes important research findings across several disciplines to identify numerous significant barriers to futures decision making. The paper presents several recommendations on how to improve futures decision making in the future.     

交易型操纵行为影响证券价格的微观机制研究--以连续交易、虚假申报、对倒操纵典型案例为切入点

中国证监会行政处罚的典型案例显示,交易型操纵行为包括建仓持仓、通过不正当交易行为影响证券价格、反向交易获利或谋取其他利益等三个步骤。在连续交易操纵中,行为人大量以高于市场卖一价的价格申报并高比例成交,影响证券交易价格。虚假申报操纵是通过不以成交为目的频繁或大额申报、撤单,制造买盘汹涌的假象,误导市场投资者跟风交易,从而影响证券交易价格。对倒操纵是利用资金优势或持股优势,通过自买自卖放大证券交易量并拉抬证券价格。因此,交易型操纵实质上是通过不正当交易行为,在特定期间内制造虚假证券供求关系,从而扭曲证券市场价格。     

An interactive decision stratum for the multilevel world model

A world model being developed by the authors for the Club of Rome is described. It is based on an interaction between man—the decision maker or the policy analyst-and the computer. Such a symbiosis avoids the pitfalls of relying solely on the computer for policy analysis, which by necessity leads to a mechanistic view of the situation; it provides also means for a creative use of computer techniques for extending the logical capability of man in long-term planning and analysis while leaving the ultimate responsibility for prediction, planning and decision making in his hands. The model is multilevel and hierarchical, with the world represented not as an aggregate, but as a number of regions with countries grouped according to economic similarity.     

Developing an abduction-based method for futures research

Futures research is an established field of knowledge with a wealth of methods and techniques. However, foresight, future outlooks and scenarios are, as a rule, based on inductivist or deductivist methods, making looking into the future a form of conservative projecting of past and present probabilities onto the road of development lying ahead of us. Closed past or present outlooks give birth to open futures, but these futures usually are little more than exercises in organizational learning. In this paper we present and develop a method for futures research that is based on abductive logic. Abduction-based futures research approach proceeds from closed, imaginary future states to alternative, open theoretical frameworks or explanations. Unlike inductivists and deductivists believe, this procedure from the unknown to the known is rational, and therefore something that can be systematized and learned. There is a logic of discovery, and what could be a better place to apply and develop it than futures research.     

Forecasting mortality

Abstract

The work of actuaries is concerned with estimating the future on the basis of past experience. The calculation of a premium to be charged for a given risk implies a forecast of the future but so far as mortality is concerned we have generally been content to examine past experience and assume that the results will be repeated. Judged as forecasts our estimates have sometimes been wide of the mark and owing to an almost continuous improvement in mortality actuaries have been assuming heavier rates of mortality than have been experienced. We may defend the use of past experience by saying that it is on the safe side when we are calculating premiums and we may argue that it is the best practical method; but an alternative is to make a more accurate forecast and then allow in our calculations a margin for chance deviations, emergencies, etc. Moreover the assumption that the past will be repeated has not been uniformly safe; it has led to bad results in annuity business and may prove unfortunate in social insurance, pension funds, and even sickness insurance. For some of these purposes we should either work on an estimate of future rates of mortality or, which comes to much the same thing, take a sufficient margin to cover the error involved in our assumptions.     

Looking back and going forward: what should the new European Commission do in order to promote evidence-based policy-making?

In this paper, we first give an overview of what has happened in Europe within the area of regulation over the past 5 years or so. We then examine where the new European Commission and the Parliament are with regard to evidence-based and risk-informed policy-making taking a specific look at the importance of transparency among European regulatory agencies, the calls for better regulation that were initiated by First Vice President Timmermans, and the continued mis-use of the precautionary principle. In the final section, we provide a number of recommendations on what the Commission and the Parliament should do going forward including moving away from fish bowl to science-based transparency, making the member states more receptive to science-based policy-making and strengthening the capacity of the European Commission to further promote evidence-based and risk-informed policy-making.     

Edwards and Bell on Income Measurement in Retrospect

The arguments of Edwards and Bell for periodical income measurement by use of the entry prices of closing assets are examined critically. Some of the grounds on which their conclusions rest are unobjectionable; but some crucial assumptions are untenable. The purchase prices of goods not yet acquired are necessary in making choices or decisions. But no case was, or can be, established for using entry prices for closing asset valuations in accounts or evaluations of past performance. All like systems fall under the same criticisms.     

How do individual investors trade?

This paper examines how high-frequency trading decisions of individual investors are influenced by past price changes. Specifically, we address the question as to whether decisions to open or close a position are different when investors already hold a position compared with when they do not. Based on a unique data set from an electronic foreign exchange trading platform, OANDA FXTrade, we find that investors’ future order flow is (significantly) driven by past price movements and that these predictive patterns last up to several hours. This observation clearly shows that for high-frequency trading, investors rely on previous price movements in making future investment decisions. We provide clear evidence that market and limit orders flows are much more predictable if those orders are submitted to close an existing position than if they are used to open one. We interpret this finding as evidence for the existence of a monitoring effect, which has implications for theoretical market microstructure models and behavioral finance phenomena, such as the endowment effect.     

将对未来的估计包含在今天的财务报表中

本文阐释了将对未来的估计包含在今天财务报表中的方式,而不是为什么应当将对未来的估计包含在今天财务报表中的问题。在今天的财务报表中包含对未来的估计并不是一个新概念,但用处却日益增加。这主要是因为会计准则制定机构认为,反映当前经济状况、并根据对未来的预期更新的对资产和负债的计量方式,将产生有利于做出经济决策的更为有用的信息,这正是财务报告的目标所在。这也是会计准则制定机构关注公允价值会计的原因。如何将对未来的估计包含在财务报表中,取决于资产和负债的计量属性,以及从财务报告角度对资产和负债的定义。现行资产和负债的定义取决于确定产生预期经济利益流入或流出的过去交易或事项,对于预期经济利益流入,还需要关注对预期的控制。因此,并不是所有预期经济利益的流入或流出都予以确认。附注披露能够帮助财务报表使用者理解已经在财务报表中确认的估计,并提供尚未确认估计的相关信息。将对未来的估计更多地包含在今天的财务报表中,将会产生与目前反映的收益有所不同的收益计量方式,但值得讨论的是,这种计量能够对经济决策提供更好的信息。