Economic Scenario Generation: Risk Neutral Modeling in Theory and Practice

The volatile markets and evolving regulatory climate of recent years, has driven much attention across the insurance industry to risk management. Many in the actuarial profession have been moving away from deterministic approaches, looking to gain a wider picture of risk exposures as their firms adopt more complex investment-linked products and are subject to a more complex regulation. More than simply setting higher premiums and passing risk on to the insured, firms can also find competitive advantage through the application of sophisticated Economic Scenario Generation (ESG) techniques right from the product design phase.

Whether fully immersed in ESG, or just beginning to consider implementation of ESG techniques, the success of these approaches depends on skilled leveraging of a solid and consistent modeling framework.

On October 2, 2012 Ghali Boukfaoui discussed Risk Neutral Modeling for Economic Scenario Generation. As the first installment of our ESG webinar series, this webinar:

  • Reviewed the foundations of the Risk Neutral Theory, the framework upon which Risk Neutral Economic Scenario Generation Modeling is built
  • Examined the Hybrid Framework and Joint Calibration Approaches
  • Described the strengths and weaknesses, as well as important nuances of each approach
  • Explained these approaches in context of the market consistency challenge
  • Introduced Advanced Indices Generation

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