Insurance Risk/Technical paper
Quadratic Gaussian inflation
Quadratic Gaussian inflation
Non-linear mixture of asset return models
Non-linear mixture of asset return models
Market reaction to price changes and fat-tailed returns
Market reaction to price changes and fat-tailed returns
Quanto adjustments in the presence of stochastic volatility
It is well known that the quanto adjustment in the drift of the underlying has a significant impact on the prices of quanto options. Alexander Giese points out that an additional quanto adjustment in the underlying’s volatility needs to be considered in…
Stress testing with fully flexible causal inputs
Stress testing with fully flexible causal inputs
CMS: covering all bases
CMS: covering all bases
Analytical risk contributions for non-linear portfolios
Analytical risk contributions for non-linear portfolios
Perturbed Gaussian copula: introducing the skew effect in co-dependence
Gaussian copula models are often used in the industry when single-asset information is quoted but little is known about their joint relation. These models may arise from correlated stochastic Brownian processes with deterministic volatility and…
A historical-parametric hybrid VAR
A historical-parametric hybrid VAR
Sponsor covenants in risk-based capital
Sponsor covenants in risk-based capital
Market-consistent equity risk premiums
The capital asset pricing model used to determine excess return for a given risk level and allocate assets typically uses historical data, which can be a poor predictor of risk. By adapting the model to be consistent with market-implied distributions,…
A new breed of copulas for risk and portfolio management
A new breed of copulas for risk and portfolio management
Spread options, Farkas's lemma and linear programming
Spread options, Farkas's lemma and linear programming
Confidence in controlling risk measures
Insurers increasingly use stochastic simulation approaches for estimating risk capital, but numerical errors are rarely measured. A control variate method can improve the accuracy dramatically without increasing the number of simulations.
Valuation of with-profit insurance policies with interest rate guarantees
Classical with-profit life insurance products are traditionally backed by a buy-and-hold bond investment strategy. Using book-value accounting for such products tends to lead to a design of the guarantee rate based on an average of long-term interest…
Assessment of longevity risk under Solvency II
As the implementation of Solvency II looms, the calibration of the standard formula remains a controversial issue as the industry runs the fifth quantitative impact study. But the current design overshoots the one in 200 year confidence level.
Two curves, one price
The financial crisis multiplied the yield curves used to price interest rate derivatives, making traditional no arbitrage pricing no longer valid. By taking into account the basis adjustment bootstrapped from market basis swaps and using a foreign…
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…
Factors on demand
Linear factor models are commonly used by portfolio managers to capture sources of risk, traditionally split between systematic and idiosyncratic types. By using the conditional link between flexible bottom-up estimation, and top-down attribution, factor…