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

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

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 Based on interviews with experienced practitioners as well as historical documents and meeting minutes, this paper traces historical model evolution in the United Kingdom and abroad.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.

Suggested Citation

  • Jakhria, P. & Frankland, R. & Sharp, S. & Smith, A. & Rowe, A. & Wilkins, T., 2019. "Evolution of economic scenario generators: a report by the Extreme Events Working Party members," British Actuarial Journal, Cambridge University Press, vol. 24, pages 1-1, January.
    • Handle: RePEc:cup:bracjl:v:24:y:2019:i::p:-_4
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    Cited by:

    1. Ahmet Akca & Ethem Çanakoğlu, 2021. "Adaptive stochastic risk estimation of firm operating profit," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 48(3), pages 463-504, September.

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