Description: Statistics were invented to describe heterogeneity and are now applied to tackle alea. It may not be appropriate. Let's clarify their field of relevance.

Description: This article focuses on one fundamental modeling assumption — the choice of a benchmark rate or risk-free rate. The author looks at this bond market assumption as a case study of how one needs to monitor fundamental market changes for their impact on assumptions.

Description: A discussion of methods used to determine the liability of segregated fund or separate account investment guarantees.

Description: Explains the method used to calculate Liquidity Cost Score and Price Impact Score. Describes the rationale for and applications of these methods.

Description: There are two main techniques for evaluating the financial impact of interest rate movements on insurance companies: duration measures and computer simulations. In many ways these approaches provide complementary viewpoints.

Description: The article focuses on the need to develop a strategy for investing surplus resulting from the buildup of significant excess capital. The author discusses three principles on which a company can base its surplus investment strategy, including the risk/return preference of the client, attribution of surplus to the products and an investment strategy based on all company risks.

Description: This article explores the effectiveness of hedging delta and rho of equity options. This provides insight into the frequency and severity of losses due to not hedging volatility risk or other higher order risks. 10yr-equity put option strategies were chosen to represent the risk of hedging guaranteed benefits attached to variable annuities, while 1-yr put and call strategies were modeled to investigate the risk of hedging equity index interest credited to fixed indexed annuities. In both cases, the value of the option was compared to the value of delta/rho hedges in the tail of both actual historical and simulated scenarios for equity returns and volatilities. The historical path of interest rates and equities was generally used to highlight the hedge impact for different implied volatility assumptions in each example.

Description: Discussion of significant anomalies in option pricing due to the independent identically distributed assumption of the Black Scholes formula.

Description: This article shows a different form of the Black-Scholes formula for European calls and puts under risk-neutral assumptions, that permits a comfortable verbal interpretation. The derivation of this alternative form appears at the end of the article.

Description: This article discusses asset-liability management from two different paradigms, one a simulation of the firm as an external observer e.g. shareholder would view it, and the other a “still life” at a given moment from an internal viewpoint.