Realistic Valuations and Shareholder Risks
Document ID: 2003-789 (previously 2003/002)
Published on: 1st March 2003
Author: Craig Turnbull
To date, UK offices have used a market-consistent valuation framework to calculate realistic balance sheets for FSA reporting purposes. However, this powerful tool can be used as a platform for more than ‘just’ market-consistent liability valuation. Once in place it can also yield key insights into the nature and size of the risks associated with the shareholders’ liability that sits on this balance sheet. This can provide important information for the appraisal of investment strategies for the assets backing the shareholder costs estimated in the valuation exercise (particularly for those offices wishing to minimise shareholders’ market risk exposures and the associated risk-based/economic capital). This note provides an overview of how the market-consistent modelling framework can be used to generate such insights and information.
