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Evolution of economic scenario generators: a report by the Extreme Events Working Party members

  • P. Jakhria, R. Frankland, S. Sharp, A. Smith, A. Rowe and T. Wilkins...

Abstract

Some UK insurers have been using real-world economic scenarios for more than 30 years. Popular approaches have included random walks, time series models, arbitrage-free models with added risk premiums or 1-year Value at Risk distribution fits. Based on interviews with experienced practitioners as well as historical documents and meeting minutes, this paper traces historical model evolution in the United Kingdom and abroad. We examine the possible catalysts for changes in modelling practice with a particular emphasis on regulatory and socio-cultural influences. We apply past lessons to provide some guidance to the direction of capital market modelling in future, which has been key for business and strategy decisions.

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Copyright

This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited.

Corresponding author

*Correspondence to: Parit Jakhria, 7th Floor, Governor’s House, Laurence Pountney Hill, London EC4R 0HH, UK. E-mail: parit.jakhria@prudentialpmg.co.uk

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Keywords

Evolution of economic scenario generators: a report by the Extreme Events Working Party members

  • P. Jakhria, R. Frankland, S. Sharp, A. Smith, A. Rowe and T. Wilkins...

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