Augmenting ESG Output with Additional Risk
Document ID: 2010-2009
Published on: 11th November 2010
Author: Steven Morrison
The structural, multi-period models used in Barrie & Hibbert’s ESG provide an effective solution for measuring the effect of financial market risks on the asset and liability portfolios of insurers.
In this note we propose a hybrid solution to the problem of generating multiple risk factors describing both financial market and other risks. We assume that an appropriately designed and calibrated ESG model provides the best solution for the generation of market risk factors, but that these factors are then augmented by additional non-market factors that are generated using simple copula techniques outside the ESG.
