Option-Implied indicators for market stress

TStock and index options are traded on the financial market and their prices  are determined by supply and demand. These prices are publicly available and are forward-looking: they contain information about the aggregate view of the market about the future dynamics of the financial market. The Volatility Index (VIX) is the market barometer for volatility and […]

Forward and backward preferences

Classical backward preferences of an investor are simply defined by a family of her value functions across states and times. Due to the backward nature, a terminal preference must be specified a priori. However, pre-specifying the future preference is actually unjustifiable in practice. To rectify this modeling drawback, a novel concept called forward preferences has […]

Visualization of sample recycling methods for nested stochastic modeling

As more regulatory reporting requirements in the regulatory regimes around the world move towards dependence on stochastic approaches, insurance companies are experiencing increasing difficulty with detailed forecasting and more accurate valuation and risk assessment based on Monte Carlo simulations. Stochastic modeling is commonly used by financial reporting actuaries whenever reporting procedures, such as reserving and […]

Northwestern Mutual Fixed Income Project

Evaluating the performance of an active manager in institutional fixed income portfolios is often challenging due to the necessary customization of issuance-based benchmarks to meet specific investment objectives. These constraints can be related to risk limits including factors such as aggregate credit quality, issuer concentration, or asset type. Other constraints can be more liability-based such as duration, convexity, or minimum yield. Simply assessing a manager’s total returns relative to a broad-based index or peer group in isolation does not provide a complete representation of the quality of management. […]