With risk management being front of mind in the world of Solvency II and SAM – through topics ranging from risk optimisation to risk capital – consideration should be given to the use of Economic Scenario Generator (ESG) models and their usefulness in providing risk management information.

When discussing ESG models one generally refers to Real-World or Risk-Neutral approaches. Risk-neutral ESG models are normally used for pricing or valuing the cost of embedded options and are not considered in this article.

In this article I am discussing the use of ESGs using the Real-World approach without going into the detail of the underlying complex mathematical algorithms – but rather by answering a few simple questions and concluding by looking at abridged case studies.

 

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Categories: Insights