Description: As stochastic modeling has evolved, it has divided down two paths—real-world and risk-neutral. This article discusses this division and shows how these paths may be re-united through the use of deflators.

Description: When Is It Right To Use Arbitrage-Free Scenarios? by Stephen Britt from Risks and Rewards Newsletter, September 2000, Issue No. 35.

Description: Abstract of Research Project on Interest Rate Risk

Description: By necessity, attributions of financial processes require approximations. Tools used for approximations include Aumann-Shapley, time step, step-through, average step-through, partial derivative, and average partial derivative. Significantly non-linear paths can cause problems during attribution. Time (theta) and market factors must be handled concurrently. Typically contractual factors can be handled separately. Average Step-Through, Aumann-Shapley and Aumann-Shapley-3 points perform the best given the same time period. Attribution should be done with fairly small time steps as opposed to using a lot of points in the Aumann-Shapley calculation, but using Aumann-Shapley-3 points as a last step has some advantages.

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: This article describes the proposal selected for research involving the modeling of economic series. The proposal submitted by the research team of Kevin Ahlgrim of Bradley University, Stephen D'Arcy of the University of Illinios and Richard Gorvett of Zurich North America was selected.

Description: What is going on with the exchange rate, anyway? In 2002, $1 U.S. bought $C 1.60, and now in May 2005 you only get $C 1.25—that’s 20 percent less! Where’s it going next? One way to answer that question is with a time series model.

Description: Feature article discussing how insurers have reflected volatility in asset return assumptions when determining capital requirements, but have largely disregarded the impact of mortality volatility on their liability assumptions when performing stochastic analysis.

Description: Provides a metric based on the concept of "entropy" from information theory/signal processing, for modifying a stochastic scenario set to meet pre-defined targets on average across the set. Explains the concept and develops it in simple examples. Illustrates why an optimal adjustment to the scenario set is one that maximizes entropy. Provides guidelines to limit use of the technique appropriately and avoid invalid application of the tool.

Description: The author discusses the review of a recent 2001 Wall Street Journal’s semiannual survey of economists’ forecasts, starting by asking if there is a simple way to summarize the results and to extract a consensus forecast, and from this extraction, determine when an individual forecast is significantly different from that of the consensus.This article is reprinted with permission. It last ran in the Jan. 10, 2001 issue of The La Jolla Economics newsletter.