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Kemp, M.H.D. (2009)Market consistency: Model calibration in imperfect marketshere

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Short description from book cover

"Market consistency, i.e. taking account of ‘what the market has to say’, is a dominant theme within modern financial risk management, regulatory solvency assessment, accounting and actuarial practice and investment market thinking. In this book, Malcolm Kemp provides practitioners, researchers, students and general readers alike with a systematic development of how best to incorporate market consistency in each of these disciplines.

The book explores how best to mark-to-market illiquid assets and liabilities (and then to incorporate these valuations in solvency and other types of financial analysis) and how to define and identify risk-free interest rates, even when the creditworthiness of governments is no longer undoubted. It also explores when practitioners should focus most on market consistency and when their clients or employers might have less desire for such emphasis, including how best to incorporate market consistent thinking within practical risk management, investment management and portfolio construction.

The book also includes an analysis of the intrinsic role of regulation and risk management within different parts of the financial services industry. Malcolm Kemp highlights why ideal regulatory solvency approaches for long-term investors like insurers and pension funds might not be the same as for other financial market participants such as banks and asset managers. He also explores whether and how governments and society more generally can benefit from the undoubted attractions of greater focus on market consistency without this leading to undue economic cyclicality."

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