Economic turmoil taxes market risk models

Treading carefully

Stepping stones

For many insurers, particularly those in the life business, market risk is the biggest risk they face. But it is also the risk that companies can have the most control over through hedging with derivatives or changes in investment strategy. However, before market risk can be managed it must first be modelled – and therein lies the challenge.

As the past few years have amply demonstrated, markets have a way of behaving contrary to assumptions that necessarily must be made in the modelling process

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