Web Session: Calibration of Economic Scenarios Generators – Key Challenges
The context of a prolonged decline in interest rates has led most life insurers to make profound changes, particularly with regards to the evolution of financial strategies as well as the savings business model. Also, as the complexity of investment strategies and management rules has evolved, it has become necessary for key players in the insurance market to properly capture credit spreads risk, sustained by a regulatory demand to capture adequately the risks in the valuation of the balance sheet.
These changes require the adaptation of different risk and value management tools, including asset-liability projection models and ESGs.
In this context, this web session offers a comprehensive view on the current challenges related to the calibration of interest rate and credit risk models in ESGs for Risk Neutral valuation.
Among the models embedded in economic scenario generators, those relating to nominal interest rates have indeed reached a significant complexity; this is due on the one hand to the very nature of the model (displacement coefficient, stochastic volatility, ...) and on the other hand to the intrinsic complexity of the modelled variables; in particular, when the calibration is based on market swaption data (options on interest rate swaps), many dimensions are taken into consideration. As for interest rates, this web session will present new solutions to perform the calibration faster and more in line with the sensitivity of the balance sheet.
Also, credit risk models have currently evolved to allow modelling the dynamics of default intensities, rating transition probabilities, and even the occurrence of default and migration. These features can be used as key levers to reflect the actual management rules in the projection model, but require a prudent approach concerning calibration. Through case studies, this web session will illustrate good practices for calibration related to several credit risk models.
This web session has been developed for practitioners who want to gain a deeper understanding of the state of the art techniques for the calibration of interest rate and credit risk models within ESGs.
Organised by the EAA - European Actuarial Academy GmbH.