Model Research
Read our Research:
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Client-focused investment management: the use of scenario-based modellingScenario based models offer a reliable tool for designing investment products that do what they say on the tin. Phil Mowbray discusses the benefits of embedding scenario-based modelling into product design and communication processes.
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Quantifying and minimizing the uncertainty in tail estimates
An estimate of capital requirements which is simply based on a single 'best guess' number e.g. "my 99.5% 1-year VaR is £1,000m" provides limited information as it says nothing about the statistical error around this estimate. What if the ESG is run under a different seed and the number changes to £1,100m or £900m? Furthermore, it is an estimate of a single point on the distribution (the 99.5th percentile). What about the 99.9th? Or the 99.5th CVaR? This note outlines a methodology (extreme value theory) for answering these questions.
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One year calibration and choice of equity model
This Insight note provides guidance on how to make the correct choice of equity model for Solvency II. It illustrates the differences between a constant volatility and SVJD model with a back testing example against actual returns in 2009.
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Inflation Modelling
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Model Insights - Constructing a term structure of unconditional interest rate volatility
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Model Insights - The absence of equity diversification in times of stress
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Model Insights - Replicating portfolios for economic capital
In this note we demonstrate the use of Replicating Portfolios for calculation of economic capital requirements using a simple illustrative example. This analysis indicates that an apparently good RP (based on a standard goodness-of-fit metric) can result in significant errors in estimated capital requirements. We also indicate how the RP technique can be supplemented with Monte Carlo valuation techniques in order to minimise the approximation errors introduced by the use of RPs alone.
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Model Insights - Market-consistent valuation of ultra long-term cash flows
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Model Insights - Bond - equity correlation
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Model Insights - A clarification of terminology
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Model Insights: A clarification of terminology
