Besides ProVal’s three simulators, there is a fourth option, the Custom (import simulation results) type, to import your own results. (Often these imported results are the previously exported results of one of the other three types of simulation, with small manual adjustments.) Alternatively, you may initialize a custom simulator by “cloning” an existing ProVal Capital Market Simulation library entry.

Most commonly, one wants to modify the results of one of ProVal’s other simulation types. In this case, open the prior simulation and change its type to the Custom type; the asset classes that were defined in the cloned simulator will now exist in the custom simulator just initialized. Once cloned from an existing simulation, the custom simulator may be modified and expanded as desired. The new custom simulator will have all the capabilities of the original ProVal simulator. For example, the custom simulator may be used to forecast to a full yield curve if an Explicit Corporate Yield Curve simulator is cloned. 

If a custom simulator is not initialized by cloning an existing simulator, all capital market data (with respect to trial data) needs to be imported into ProVal through the Asset Classes topic, perhaps, but not necessarily, from an application external to ProVal. This imported information must include inflation and nominal returns for each asset class. Note that if you do not import simulation results for inflation, use of the simulation will result in an error message and aborted run when the stochastic forecast is executed. 

You may also forecast to full yield curves by linking to yield curve database files under the Simulated Full Yield Curves topic.  There are only two topics if the Custom capital market Simulation Type is selected:  Asset Classes and Simulated Full Yield Curves. The remainder of this article discusses asset class information and the parameters of the Asset Classes topic.

The imported data may optionally include 30 year government yields and corporate bond yields. Note that if you wish to model funding or accounting interest rates that vary with changes to interest rates (such as Canadian solvency liability) then you must import either 30 year government yields or corporate bond yields. Similarly, if you wish to model a lump sum payment form that varies with changes in interest rates, you must import simulated results for the 30 year government yield benchmark or the corporate bond yield benchmark. If the simulator was initialized by cloning another ProVal simulation, this data may already exist in the custom simulator.

The Asset Classes topic allows you to delete existing asset classes, import simulated nominal rates of return by year and trial for new asset classes, or replace existing asset classes. Inflation and bond yield data may also be imported. Note that for each asset class, the simulated nominal rate of return for each year and trial must be specified and that inflation data must be provided, whereas bond yield data is optional.

Any previously defined Asset Classes are already listed in the grid in the Asset Classes dialog box (even if not yet imported). If the custom simulation was initialized by cloning an existing ProVal simulator, asset classes that had not been entered explicitly in the original simulation may exist. There will be two such classes if the cloned simulator was a Multi-Factor Term Structure simulator (NRgov1 and NRgov30, that is, the 1 and 30 year government bond asset classes) and four classes if the cloned simulator was an Explicit Corporate Yield Curve simulator (NRgov1, NRgov30, NRcorp1 and NRcorp30, that is, the 1 and 30 year government bond and 1 and 30 year corporate bond asset classes). The income return for these classes will be stochastic, just as it is in the original simulator. The turnover for these classes is entered by ProVal as “1”. Also, any zero coupon bond classes that were originally in the cloned simulator will have a stochastic income return and a turnover of 1 as properties.

You may change the order in which the asset classes appear in the Asset Classes dialog box and in output: just click the Order column of the asset class’s row and type in the desired order number. To edit one of the parameters Name, Description, Income or Turnover for a specific asset class, click the appropriate spreadsheet column for the class and type in the revision. To edit the Class Type, click its column in the appropriate row and then click the arrow that appears: you may choose either Equity or Fixed Income. For a complete description of these parameters, see Asset Class Parameters.

You may not make entries in the Years, Trials and Accounting columns: these parameters are specified during the import process. They may however, already exist as a consequence of cloning an existing simulator. For an explanation of how the numbers of years and trials are set, see Import Capital Market Simulation. For an explanation of how the accounting entry is developed, see the discussion later in this article.

Check the Include 30-Year Government Benchmark Yield box to import yields that correspond to 30-year government bonds. If the benchmark existed in the cloned simulation, this box will be checked upon initialization. Trials of government bond yields for each forecast year may be imported from the selected import file. This benchmark yield can be used to vary valuation assumption interest rates for various liabilities (depending on the ProVal mode of operation), as well as for experience lump sum interest rates in a Stochastic Forecast. If neither this box nor the Include Corporate Bond Benchmark Yield box (discussed below) is checked, initial (baseline) valuation date interest rates will be used for all future years.

See the discussion of future valuation interest stochastic assumptions for details about how the benchmark yield is used for the various valuation assumption interest rates for: funding, accounting, accounting return on assets and, in some of the pension modes, specialized liabilities (for example, Canadian mode solvency liability interest rates, U.S. PPA target liability interest rates).

Check the Include Corporate Bond Benchmark Yield box to import yields that correspond to corporate bonds. If the benchmark existed in the cloned simulation, this box will be checked upon initialization. Trials of corporate bond yields for each forecast year may be imported from the selected import file. This benchmark yield can be used to vary valuation assumption interest rates for various liabilities (depending on the ProVal mode of operation), as well as for experience lump sum interest rates, in a Stochastic Forecast. If neither this box nor the Include 30-Year Government Benchmark Yield box is checked, initial (baseline) valuation date interest rates will be used for all future years.

Check the Include separate accounting returns assuming … months between the measurement and valuation dates box to import separate accounting returns/results for multiple trials for each forecast year. If separate accounting returns existed in the cloned simulation, this box will be checked upon initialization. If separate accounting returns have not been initialized, and you desire to import them, enter the number of months between the measurement and valuation dates as an integer value between 0 and 12, inclusive. Once you have imported separate accounting returns for an asset class, the Accounting column will display “Yes”, instead of “No” or a blank, in the asset class’s row in the grid. See also the discussion of separate accounting returns under the Years, Trials & Accounting Results topic.

To import simulated results for an asset class already defined, or to import a new asset class, click the Import button, indicate the name of the file containing the simulated results and open the file. (See Import Capital Market Simulation for an illustration of the required layout of the import file.) Likewise, to import separate accounting information for an asset class already defined, or to import accounting information for a new asset class, click the Import Accounting button, indicate the name of the file containing the results you wish to use for accounting and open the file. Complete the parameters in the next (Import Capital Market Simulation or Import Capital Market Simulation Accounting Returns) dialog box. Note: Asset class accounting returns must be imported after funding returns have been imported and the accounting set of returns must have the same number of years and trials as the funding set of returns. If you have already imported simulated results for some asset classes, and you now import results for a different asset class, you need not re-import for any other asset class unless you wish to change those results. Be sure, however, that you have imported information for all asset classes. If you have defined an asset class for which you do not import information, your stochastic forecast run will be aborted.

When you have finished importing asset classes, ProVal returns you to the Asset Classes dialog box; click the OK button to return to the Capital Market Simulation dialog box.