Quarterly Financial Markets Update: Developments in Financial Markets in 2008
Document ID: 2009-1233
Published on: 6th January 2009
Author: Financial Economic Research Team
2008 has been a volatile year for financial markets. What was not present in market data running up to the calibrations at end of last year has materialised during 2008. The economic forecast at the end of 2007 was a difficult one. On one hand, high inflation could lead to higher interest rates, and on the other, signs of a slowing economy could lead to lower interest rates.
Looking back over 2008 there has been a strong fall in interest rates, inflation expectations have fallen and financial markets have become extremely volatile. The changes in financial markets have been rather extreme and, in a few cases, unprecedented. Longer term option implied volatilities, for instances, have increased strongly in the last quarter of 2008. The strong volatility in financial markets and changes in asset prices have raised questions about the impact on the year end projections and the implications for technical provisions, MCEV and Economic Capital. This note will highlight the major changes in asset prices in the past 12 months.
Note that this note was also released in the beginning of December on the developments in financial markets over the year to end November. This note updates the analysis to end December 2008
