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

Author

Listed:
  • Mohamed Majri

    (SMABTP - SMABTP)

  • François-Xavier de Lauzon

    (SMABTP - SMABTP)

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.

Suggested Citation

  • Mohamed Majri & François-Xavier de Lauzon, 2013. "An effective equity model allowing long term investments within the framework of Solvency II," Working Papers hal-00847887, HAL.
    • Handle: RePEc:hal:wpaper:hal-00847887
    Note: View the original document on HAL open archive server: https://hal.science/hal-00847887
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    References listed on IDEAS

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    1. Eling, Martin & Pankoke, David, 2013. "Basis Risk, Procylicality, and Systemic Risk in the Solvency II Equity Risk Module," Working Papers on Finance 1306, University of St. Gallen, School of Finance.
    2. 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, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

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