Allowing for Yield Curve Twist Risk in RBC and ICA Calculations
Document ID: 2005-794 (previously 2005/008)
Published on: 1st May 2005
Author: Craig McCulloch, Craig Turnbull
To date, most life office VaR-style risk-based capital assessment work has focused on quantifying the impact of duration risk. However, where assets and liabilities have quite similar durations, convexity and de-correlation risks can have a material impact on the risk-based capital assessment. This note sets out a method by which this yield curve shape risk can be naturally incorporated into a multivariate 1-year Value-at-Risk RBC framework.
