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An effective equity model allowing long term investments within the framework of Solvency II

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  • Mohamed Majri

    ()
    (SMABTP - SMABTP)

  • François-Xavier De Lauzon

    (SMABTP - SMABTP)

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    Abstract

    We propose an effective equity model adapted for medium term and long term risk assessment. One of its specific aspects is to allow an asymetrical dampening of the equity risk (called the dampener effect) conditional to the cyclical level of equity prices and to enable accurate Value At Risk assessements for medium and long term horizons (1 year and beyond). For a set of selected equity indexes we compare its relevancy for the 1-year 99.5% Value At Risk (VaR) assessment with the different releases of the Solvency II dampener equity models. In a second step we test its relevancy for VaR assessments beyond a 1 year investment horizon. We show in our analysis that this alternative model gives quite good results and outperforms widely the others tested. It appears particularly suitable for insurance companies and pension funds given their medium or long term asset management process.

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    File URL: http://hal.archives-ouvertes.fr/docs/00/84/78/87/PDF/MAJRI_20130515.pdf
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    Bibliographic Info

    Paper provided by HAL in its series Working Papers with number hal-00847887.

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    Date of creation: 15 May 2013
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    Handle: RePEc:hal:wpaper:hal-00847887

    Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00847887
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    Web page: http://hal.archives-ouvertes.fr/

    Related research

    Keywords: Value-At-Risk; Long term Equity Risk Assessment; Solvency II; Dampener; Standard Formula; Back Testing;

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    1. Martin Eling & Hato Schmeiser & Joan T. Schmit, 2007. "The Solvency II Process: Overview and Critical Analysis," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 10(1), pages 69-85, 03.
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