Barrie & Hibbert Knowledge Base

Risk-neutral Valuation and Stochastic Interest Rates

2012-01-18T15:03:49Z

In this note we give an intuitive presentation of risk-neutral valuation in the specific context of valuing interest-rate derivatives using a stochastic interest rate model. We attempt to explain the sometimes counterintuitive result that such models can produce scenarios of extremely high interest rates, far in excess of real world expectations.

Real-World equity calibration: distributional targets at end-December 2011

2012-01-05T13:02:59Z

This note provides an update to our real-world volatility, correlation and risk premium assumptions for global equity markets at end-December 2011. In our view, the assumptions presented here provide a set of feasible real-world calibration targets. Please note that these targets may not be precisely matched by specific model calibrations. In general models offer fewer degrees of freedom than the number of targets documented here. As a result, the actual choice of the calibration targets used in the fitting process is described in the model calibration documentation.

Financial markets in 2011

2012-01-05T10:38:11Z

Hopes for global economic recovery were dashed in the second half of 2011 as the Eurozone debt crisis spiralled out of control. Regional leaders failed in their attempts to appease financial markets and to shore up faith in the single currency. Given the deterioration of the economic situation through 2011 the global economy now faces significant challenges over the coming year and financial institutions are once again exposed to major risks.

The Financial Market Update summarises key developments in global financial markets over 2011. Many of our ESG models are calibrated taking into account current market conditions; this report offers insights into the key areas in which this calibration is likely to differ from End December 2010 and examines the financial economic drivers behind such changes.

LMMPlus Model Definition

2011-12-23T10:27:23Z

This document describes the LMM+ model, its underlying stochastic differential equations and the swaption pricing technique.

Barrie & Hibbert Market-consistent Interest Rate Models: A Comparison

2011-12-23T09:33:50Z

This document summarises the key features of each of Barrie & Hibbert's modelling choices for nominal interest rates in a market-consistent context.

Swiss Stress Disorder

2011-12-16T09:38:18Z

Given the flight from distressed and risky currency to safer assets as a consequence of the Euro zone currency fiasco together with the Swiss central bank’s policy response, the Swiss Franc and domestic interest rates have been subject to extraordinary pressure during 2011. This short note compares the moves in CHF government interest rates through to end-September with our projections at the beginning of the year.

End-December 2011 pre-calibration note

2011-12-08T10:19:13Z

This note sets out the planned delivery schedule for our 31 December 2011 ESG calibrations. Additionally we provide details of changes to our calibration methodology and coverage.

GDP Modelling

2011-12-07T15:10:28Z

An economy's Gross Domestic Product (GDP) is the value of the output of all economic activity that is undertaken within it. The growth rate of GDP is viewed as a key indicator of whether the aggregate standard of living in an economic area is improving or stagnating. This note outlines the Barrie and Hibbert approach to modelling real GDP growth rates.

G2x Calibration Methods - Real World Multi Year and 1-Year VaR

2011-11-25T09:53:55Z

In this note, we outline different calibration approaches for the new G2x model introduced in ESG 7.2 and compare the model’s calibration performance against economic targets and time zero market data. The G2x model allows the user to specify a set of credit spread factor exposures for different maturities and ratings, which scale the ordinary G2 credit model spreads, thus affecting the fit to time zero market spreads and time-n credit spread targets.

Beyond Solvency II Event - London Stock Exchange - 2nd Nov 2011

2011-11-04T14:49:51Z

The Barrie & Hibbert Beyond Solvency II ERM conference was held on 2nd May at the London Stock Exchange. This download includes audio recordings of the sessions, as well as the presentation slides from the day.

End September 2011 Market Consistent Correlation Calibration and Validation

2011-10-27T10:07:43Z

This note summarises Market Consistent equity interest rates correlation calibration implemented at end September 2011 and details correlation validations for end June 2011 based on the updated correlation matrix calibration. This update to Market Consistent correlation matrix calibration follows end September 2011 update of the long term Real World equity interest rates correlation targets.

Real-world credit calibration - 1y conditional target update (corporate spreads only) end Sept 2011

2011-10-12T08:44:39Z

This note provides our latest 1y conditional targets for corporate credit spread volatility for the following economies: USD, EUR, GBP, CAD, AUD and JPY.

Real-world equity calibration: distributional targets at end-September 2011

2011-10-05T07:37:01Z

This note provides an update to our real-world volatility, correlation and risk premium assumptions for global equity markets at end-September 2011. In our view, the assumptions presented here provide a set of feasible real-world calibration targets. Please note that these targets may not be precisely matched by specific model calibrations. In general models offer fewer degrees of freedom than the number of targets documented here. As a result, the actual choice of the calibration targets used in the fitting process is described in the model calibration documentation.

Real World Modelling and Research: Multi-Year Equity / Interest Rate Correlation Target Update Q3 2011

2011-09-26T14:14:23Z

Within the models presented in the ESG, we have identified a set of key equity versus interest rate correlations (short and long rates, nominal and real) for which we set targets. This report provides the latest correlation targets and summarises our target setting methodology and analysis.

End September 2011 Pre-calibration Note

2011-09-22T09:09:53Z

This note sets out the planned delivery schedule for our 30th September 2011 ESG calibrations. Additionally we provide details of changes to our calibration methodology and coverage.