Modeling Approaches and Challenges focuses on approaches to real world simulation and the challenges and considerations in real world simulation. Topics include:
- A frequency domain approach to build realistic multi-horizon scenarios. (Ortec approach)
- Cascade models structure linking models for major asset classes and economic variables. (Moody’s approach)
- Overview of models, calibrations & approaches within the context of different use cases.
- Deterministic & stochastic approaches.
- Importance of model re-calibration flexibility.
We will also discuss specific insights into considerations and challenges in real world simulation, which include topics like:
- Setting capital market assumptions and/or calibration targets.
- Assumptions about correlation and causality.
- Calibrating the model to capital markets assumptions.
- Validating the model against capital market assumptions. Role of history, market data and stylized facts.
- Importance of back testing.
- Calibrating the model to multiple investment horizons.
- Inclusion of alterative asset classes such as private equity, infrastructure, and direct real estate. Associated issues of limited data, illiquidity and greater uncertainty about calibration targets.