Real-World Equity & Volatility Behavior
white paper

Real-World Equity & Volatility Behavior

In this research paper, Andrew McClelland PhD and Financial Engineering specialist at Numerix, examines the differences between risk-neutral dynamics and real-world dynamics, and the important role of risk premia. The paper explores why real-world dynamics are necessary for risk analysis and scenario generation, and also discusses the roles of the equity premium and volatility premium in stochastic volatility models of equity markets.

Highlights include:

  • Real-world Dynamics vs. Risk-neutral Dynamics
  • Defining Risk-neutral Dynamics
  • Defining Real-world Dynamics
  • Implications for Risk Profiles and Scenarios
  • Impact on Variable Annuities & Structured Derivatives
  • Stochastic Volatility and The Volatility Premium
  • Best Practices for Process Re-engineering and Implementation
  • Best Practices for Visualizing EVA
  • Why Real-world Profiles Can Deviate from Risk-neutral Profiles

Complete the form to download this complimentary whitepaper, “Real-World Equity & Volatility Behavior: Implications for Economic Scenario Generation.”



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