Stochastic Assumptions
ProVal has two types of forecast models that utilize the results of a Core Projection: the Deterministic Forecast and the Stochastic Forecast, whose essential difference is in the number of scenarios of future experience produced by the forecast. The Deterministic Forecast produces only one future scenario, whereas the Stochastic Forecast produces as many scenarios as there are trials specified. To perform a Stochastic Forecast, you need to define a set of Stochastic Assumptions, to specify, for the forecast period:
a capital market simulation, which provides simulated investment returns,
assumptions about economic experience (e.g., portfolio mixes, plan amendments adopted, experience COLAs granted, first-year overrides of simulation results) and
valuation assumptions for future years (after the baseline, or first, plan year) with respect to interest rates.
Name is a text field for entering a description of the Stochastic Assumptions set being defined.
Select a Capital Market Simulation from among the list of executed Capital Market Simulations in the current Project.
Complete the topics under the Economic Experience heading. These topics differ somewhat by mode and allow you to specify experience (that is, what you assume will be the actual experience over the forecast years) with respect to events that affect asset values and employer contributions to the plan, such as the asset mix, benchmark yields, changes in benefits paid due to actual (granted) cost-of-living increases for pension benefits (in excess of rates in projection assumptions) or due to plan amendments changing benefits for active members, and any overrides that are applicable to the first year of experience.
Click the name of a topic to access its parameters:
First & Second Year Simulation Overrides
Additional Contributions & Maximum 420 Transfers (U.S. qualified mode) or Additional Contributions (other modes)
Additional Plan Amendments (pension modes only)
Complete the topics under the Valuation Assumptions heading. These topics are inaccessible if the selected Capital Market Simulation does not project bond returns (and thus does not simulate government bond yields). The available topics differ by mode and allow you to specify to what extent the valuation interest rates (listed below) will vary over the period of the forecast.
If an explicit corporate yield curve Capital Market Simulation has been selected, the PPA Legislated Interest Rates, Funding Interest Rate (Tax / Funding Interest Rate in German mode), Solvency Liability Interest Rates and Accounting Discount Rate may be forecast to the full yield curve, which might be calculated to contain negative interest rates. For this simulator type, the Change negative interest rates to zero in full yield curve box is accessible; check it to override any negative interest rates with a zero rate.
Click a listed valuation interest rate to access its parameters:
Legislated Interest Rates (U.S. qualified mode)
Actuarial Liability Interest Rate (U.S. qualified mode)
Funding Interest Rate (U.S. public, universal, OPEB, Canadian registered and U.K. modes)
Tax / Funding Interest Rate (German mode)
Solvency Liability Interest Rates (Canadian registered mode)
Accounting Expected Return on Assets (U.S. qualified, OPEB, U.S. public, universal and Canadian registered modes)