Case Study: Market risk modelling
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Nematrian was asked to
advise a non-life insurer on its internal market risk model for Solvency II
risk management purposes. The insurer was keen to adopt a model that was
‘market consistent’ and Nematrian’s advice included:
-
Types of uses to which a market risk model could be put and for which of
these it is most helpful to adopt market consistent approaches
-
What impact incorporating market consistent methodologies might have on
the predictive ability of a market risk model
-
How a ‘risk neutral’ distribution for different types of assets might be
identified in practice
-
The merits of blending market implied information with past data and
expert judgement when developing market risk models and how in practice this
might be done
Related material available via
Nematrian website
Some of the probability
distribution functions in the Nematrian online toolkit were expanded to
facilitate the analysis carried out for this client.