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Economic Scenario Generators

  • Thierry Moudiki
  • Frédéric PlanchetEmail author
Chapter
Part of the EAA Series book series (EAAS)

Abstract

The projection of economic and financial risk factors is a key element of prospective analyzes made by life insurers, both for the calculation of reserves under Solvency 2 and for the asset allocation and management of financial risks. This projection is achieved in practice through “economic scenario generators” (ESG), which are inputs for the calculus of the economic value of assets and liabilities and the analysis of the distribution of this value. The calculation of economic values is based on the “no free lunch” assumption and therefore leads to model the risk factors in a riskneutral probability, while the analysis of the distribution of these values requires the projection of these factors under the historical probability. Therefore, the insurer must handle different representations of the risk factors, which requires looking at the characteristics of a risk neutral ESG, those of an “historical” one and the possible need for coherence between these two representations. This is what we propose to do in this chapter.

Keywords

Interest Rate Cash Flow European Central Bank Implied Volatility Short Rate 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Copyright information

© Springer International Publishing Switzerland 2016

Authors and Affiliations

  1. 1.Univ Lyon – Université Lyon 1 – ISFA – LSAFLyonFrance
  2. 2.PRIM’ACTParisFrance

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