Half of my career, I have worked for bosses who were actuaries, and half not. Half of my career, I worked for bosses that were intellectually curious, and half not. There was a strong, but not perfect correlation between the two — most actuaries are intellectually curious, but there are a few that aren’t.
Those that know me well, know that I am a pragmatic idealist. I have strong beliefs, but I also have a strong desire to solve the problem. Where I run into difficulty is where the problem is ill-constructed, and does not admit a good answer. Any answer would be subject to numerous qualifications and explanations. Perhaps I can give some examples:
"What’s my illiquid structured finance bond worth?"
Oh my. Whether residential mortgage, commercial mortgage, or asset-backed, that depends a lot upon future loss activity across the whole financial sector. Typically I only get this question when the bond is worth little, but the entity thinks it is worth a lot, but can’t get a bid anywhere near that. Often they have been misled by third-party pricing services doing a facile job in exchange for a fee.
"How will this equity portfolio behave versus the market?"
Ugh. Beta is unstable, and estimates often lead to erroneous conclusions. More detailed modeling can come up with a reasonable answer, but also state that the correct beta is a weak tendency, and is swamped by other effects.
"This investment will eventually come back, right?"
No. Most will, but not all will. Some do go to zero, or something really close. Mean-reversion exists in the markets, and over long time periods it is strong on average, but in specific over short horizons it does not work.
"What’s the interest rate sensitivity of this illiquid structured finance bond?"
Often there is not a good model of prepayment/extension risk. Or, the model exists, but the security in question is dominated by credit risk. Will that tranche pay off or not? In such a situation, the wrong question is being asked, because interest rate risk is not the main risk.
"What’s the right spread to Treasuries for this illiquid bond?"
Sorry, but the answer will be regime-dependent, and will vary by the liquidity of the era. During times of high liquidity, it will trade near liquid bonds of similar risk. In times of low liquidity, it will trade far behind its liquid cousins.
