Validating interest rate models under Solvency II
With Solvency II fast approaching, obtaining approval for your internal model is increasingly important. A key part of this process will be to demonstrate the ability of the model’s scenario generation to describe the evolution of interest rates plausibly. This paper sets out a simple Vasicek-inspired model and outlines the steps to demonstrating its validity.
By Christian Dahmen and Tobias Herwig
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