Insurance companies employ economic scenarios for a wide variety of applications, including product development, valuation, and risk management. Many firms are faced with the challenge of incorporating their own economic assumptions about future interest rate behavior into these scenarios. Internal models often include projections of future interest rate behavior which may differ from market expectations of future rates; indeed, illiquid markets may not provide reasonable data. Changes in the shape and level of forward curves over time are the result of changing expectations of future rates and risk premia, and determining exactly how the forward curve decomposes into these two factors can be tricky.
One approach in practice involves estimating a risk premium such that the scenarios produce, on average, interest rates matching internal projections. Calibration is greatly improved by incorporating a risk premia that varies over time. Moreover, model choice is paramount ensuring future rate dynamics are both realistic and justifiable.
On Tuesday, November 4, 2014 featured speaker Alex Marion, Vice President of Product Management at Numerix, discussed approaches to producing real world interest rate scenarios which match a firm’s forecast for future interest rates, while producing realistic rate dynamics and relatively stable projections over time. This stability is important to various stakeholders, who expect to see similar long-term rate projections each month and not wildly different projections each time they are run.
Mr. Marion covered:
- Empirical evidence of term premia
- Potential sources of long term rate forecasts
- Industry models for incorporating realistic and justifiable rate dynamics
- Calibrating time-varying risk premia to forecasts of future rates
- Applications in insurance risk management
To view the on-demand webinar, just register on the right side of this page.
Featured Speakers:
Alex Marion, Vice President, Product Management, Numerix
Alex Marion heads up insurance solutions for the Numerix Client Services group as VP of Product Management. In this role he works with clients developing comprehensive risk management solutions, leveraging powerful analytics and actuarial expertise. Mr. Marion and his team of actuaries and financial engineers provide solutions in dynamic hedging, economic scenario generation, asset liability management, nested stochastics, counterparty risk, and regulatory compliance.
Prior to joining Numerix, Mr. Marion served as a quantitative analyst for Phoenix Wealth Management where he developed a risk-neutral economic scenario generator with applications in VA and EIA dynamic hedging. Before Phoenix, Mr. Marion was a consultant with Milliman’s Financial Risk Management practice where he managed dynamic hedging strategies for insurers.
Moderator: Jim Jockle, Chief Marketing Officer, Numerix
Mr. Jockle leads the company's global marketing efforts, spanning a diverse set of solutions and audiences. He oversees integrated marketing communications to customers in the largest global financial markets and to the Numerix partner network through the company's branding, electronic marketing, research, events, public relations, advertising and relationship marketing.
Prior to joining Numerix, he served as Managing Director of Global Marketing and Communications for Fitch Ratings. During his tenure at Fitch, Mr. Jockle built the firm’s public relations program, oversaw investor relations and led marketing and communications plans for several acquisitions. He also oversaw the brand development of a new company dedicated to the enhancement of credit derivative and structured-credit ratings, products and services. Prior to Fitch, Mr. Jockle was a member of the communications team at Moody's Investors Service.
