AARD vs A(delta)ARD

judyohjudyoh
edited October 2023 in W-14-Implementation

We use the AARD method when we don't have detailed exposure information to use for EOE method.

We can use A delta ARD when there are only a couple variables changing rates rather than calculating weighted averages of all variables as is done in AARD. So, A delta ARD is a simpler calculation. However, I noticed that in your Werner14 wikipage, the examples for AARD and A delta ARD have different proposed base rates. Is the difference simply due to the differences in the ways that the proposed base rate is calculated? Which method is more accurate? Is the choice of whether to use AARD vs A delta ARD based on how many variables have rates that are changing?

Also, in an exam question how would I know whether to use AARD vs A delta ARD? It seems like the only difference in information is that for A delta ARD you require the current base rate while AARD does not require it.

Comments

  • GrahamGraham

    The final proposed base rates are different because they are both approximations. Neither one is necessarily more accurate than the other.

    As far as which method to use in an exam question, it's a bit less of an issue now that the exam is given in Excel. I would probably use the AARD method because it has fewer steps. But if you're given, for example, 8 different rating variables, but only 2 of them are changing, I would probably use the A-delta-ARD method because you then only have to deal with the 2 rating variables that are changing.

    (Final point: If you are not given the current base rate, then you have to use the AARD method.)

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