Tracking travellers' cheques
Tracking the life of travellers' cheques to better manage cashflows and liquidity
The problem
Our client issues travellers' cheques which we know will be redeemed at some point in future, but the client wanted to have a better understanding of when cheques will be used to better manage its cashflows and liquidity. It also wanted estimates of how many cheques would never be used, as these are another source of profit.
Solution
We realised that estimating how likely it is to cash a travellers' cheque is similar to more traditional actuarial calculations of estimating mortality rates.
We approached the problem by estimating the mortality rates for these cheques. Similarly to real lives, these rates vary with how long the cheque has been “alive” or issued. There are also seasonal trends: cheques are more likely to be used in the summer months than the winter ones.
Using our modelling techniques we were able to give a distribution for what the redemptions each month could be as well as estimating the value of travellers' cheques that will never be used.
Benefit to client:
The client was left with a better understanding of the range of possible cashflows in the future, so it could invest its assets in such a way as to be confident of being able to meet its obligations.
