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Variants of the Smith-Wilson method with a view towards applications

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  • Thomas Viehmann

Abstract

We propose two variants of the Smith-Wilson method for practical application in the insurance industry. Our first variant relaxes the Smith-Wilson energy and can be used to incorporate less reliable market data with a certain weight rather than disregarding it completely. This is particularly useful for deriving yield curves in the IFRS 17 accounting regime, where there is a mandate to incorporate all available market data. A second variant incorporates the requirement to reach the ultimate forward rate at a prescribed term into the problem formulation. This provides a natural way to fulfil the Solvency II convergence requirement and is more elegant than the current methodology adapting the term-scale parameter to control convergence.

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  • Thomas Viehmann, 2019. "Variants of the Smith-Wilson method with a view towards applications," Papers 1906.06363, arXiv.org.
    • Handle: RePEc:arx:papers:1906.06363
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    1. Sheldon, T. J. & Smith, A. D., 2004. "Market Consistent Valuation of Life Assurance Business," British Actuarial Journal, Cambridge University Press, vol. 10(3), pages 543-605, August.
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    Cited by:

    1. Solveig Flaig & Gero Junike, 2022. "Scenario Generation for Market Risk Models Using Generative Neural Networks," Risks, MDPI, vol. 10(11), pages 1-28, October.

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