Using Stochastic Models in Risk and Capital Management in Life Assurance Tuesday 5 th April 2005 Craig Turnbull. Agenda. Introduction: Developments in the use of (internal) stochastic models in life assurance Why now? Who wants it? How does it work? What questions is it used to answer?
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Office - Specific Liability Features, Management Strategies Life Assurance
Model Office Software
Market-Consistent Balance Sheet /
Capital Assessment /
(Market – Consistent) Economic Scenario Generator
Market Prices / Best-EstimatesHow Does it Work?
Neutralising equity exposure: reductions in ICA and RCM
Option strategy improves gamma and vega matches: significant reduction in ICA, no impact on RCM
Impact of Interest Rate and Equity Market Interaction on Realistic Guarantee Cost
e.g. cash guarantee’s equity delta can double when the yield curve falls by 100bp.