Correlation and Uncertainty

 

The Correlation and Uncertainty function enables you to enter the degree, in percentages, to which you believe your contract is correlated. You specify the degree of correlation based on your knowledge of a particular contract. For example, suppose a contract contains similar risks, all of which are located near one another; you might specify a correlation factor of 50% or greater, depending on the actual proximity of the locations. Alternatively, for a non-homogeneous contract with widely dispersed locations, you are likely to specify a low degree of correlation, if any.

Users can run loss analyses with or without correlation. If the user runs the analysis with correlation, the engine applies a correlation factor.

You can specify the desired confidence levels for ground-up, retained, and/or gross losses by specifying the upper and lower range of uncertainty percentages. This provides you with the loss percentiles for each event in the distribution. While uncertainty percentages are always included in loss analysis results, you can modify the system defaults.

Set loss defaults for correlation and uncertainty in the Correlation and Uncertainty pane.

Parameters & Buttons

Description

Common buttons Use these buttons (when applicable) and the parameters below  to establish default correlation and uncertainty.

Inter Correlation Factor

Specify the default percentage of correlation between contracts in a portfolio. The system default is 0.00%.

Intra Correlation Factor

Specify the default percentage of correlation between locations within a contract. The system default is 0.00%.

Uncertainty Percentage

Specify the upper range of the confidence level. The default is 5.00%.

Uncertainty Percentage

Specify the lower range of the confidence level. The default is 95.00%.

 

 

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Touchstone V3.0 Updated December 01, 2016