PAK Exam Aid

Life ALM and Modeling (LAM) Exam

Spring 2023 Edition

RBC
SOX
U.S. GAAP
Risk Appetite
Risk Capital
Stress Testing
Capital Management
Enterprise Risk Management
Economic Scenario
ALM Matching
Risk Transfer
Economic Capital
Value at Risk
ERM
Risk
 PAK Exam Aid for LAM Spring 2023

Mock Question Sample

11. (11 points) Your boss has asked you to use a Pseudo Random Number Generator to generate
random numbers for his stochastic hedging calculation on Guaranteed Minimum Accumulation
Benefit (GMAB).

(a) (3 points) Explain why a Pseudo Random Number Generator (PRNG) is a better choice
than a True Random Number Generator (TRNG) for his purpose.

(b) (3 points) Given the following information, generate 5 random numbers using Linear
Congruential Generator (LCG).
• X0 = 30
• a = 25
• c = 35
• M = 100

(c) (3 points) Using the random numbers generated from part b for one stochastic equity
return scenario, calculate the 5-year GMAB claim at maturity for a single policy with the
following information:
• Single premium: $100
• Annual M&E charge at beginning of period: 0.50% of fund value
• GMAB amount: 100% of premium
• Persistency rate from issue to year 5: 95%
• Lognormal equity return model with μ = 10% and σ = 10%
• Annual risk-free rate = 3%

(d) (2 points) You repeat the same process from parts b and c and produce additional claims
under 4 different scenarios. Determine the GMAB option value from these 5 stochastic
scenarios by using the lognormal equity return model.

GMAB Claim
Scenario 2 0
Scenario 3 53.21
Scenario 4 85.87
Scenario 5 0

© 2023 PAK Study Manual 1 SOA LAM Exam (Mock Questions)

 PAK Exam Aid for LAM Spring 2023

11. Materials from LAM-135-19, Investment Guarantees Ch. 6 and 8

HP Answer
(a) o It is more desirable to use PRNGs than TRNGs when one is doing stochastic simulations, even though
1 the latter is considered to be a better source of randomness
1 o PRNGs are much more efficient, meaning that the amount of time required for them to generate large
sets of numbers is small compared to TRNGs
1 o Often we need to check the correctness of a piece of programming code in the simulations and want to
compare how two or more different policies can affect the underlying model. Therefore, these
simulation procedures require the random numbers to be reproducible

…to be continued

Notes
1. The Excel Spreadsheet is included for calculation questions.
2. The mock questions in the PAK Test Aid are all different from the mock questions in the PAK
Exam Aid.

© 2023 PAK Study Manual 2 SOA LAM Exam (Mock Questions)