Market Consistency: Model Calibration in
Imperfect Markets
[this page | pdf | references | back links]
The term market consistency is increasingly being
used by actuaries and others. For example, the Solvency II Directive that
harmonises the regulatory capital framework applicable to EU insurers
explicitly refers to insurance assets and liabilities being valued in a market
consistent manner.
In Market Consistency: Model Calibration in Imperfect
Markets, published by Wileys, Malcolm Kemp, a Nematrian Director, explores
this theme further. He identifies how best to adopt a market consistent
approach (i.e. how best to take account of ‘what the market has to say’) not
just for instrument valuation but also for risk management and portfolio
construction purposes. The book has been well received by leading commentators,
see e.g. Market
Consistency – Book Endorsements.

The topic of market consistency and the writing of this book
is closely intertwined with the development of the Nematrian website. When
first setting out on the development of the Nematrian website, Malcolm Kemp
wanted in part:
(a) To create a
means for putting into the public domain material too sophisticated to sit
comfortably within the book itself; and
(b) To provide a range of
analytical tools that others could use to explore some of the topics raised in
the book.
Most of the references contained in Market Consistency
can be viewed here.
Those referring back to the Nematrian website are listed here. In
the writing, editing and printing process, a few errors appear to have crept
into the book, see Market Consistency
Errata. Please advise the author if you spot any others.