For asset liability management, insurers also need future values of these guarantees. Next to that, new regulations require insurance companies to value their positions on a one-year horizon. As the option prices at t=1 are unknown, it is common practice to assume that the parameters of these option pricing models are constant, i.e., the calibrated parameters from time t=0 are also used to value the guarantees at t=1. However, it is well-known that the parameters are not constant and may depend on the state of the market which evolves under the real-world measure P.
In this paper, we propose improved regression models that, given a set of market variables such as the VIX index and risk-free interest rates, estimate the calibrated parameters. When the market variables are included in a real-world simulation, one is able to assess the calibrated parameters (and consequently the implied volatility surface) in line with the simulated state of the market. By performing a regression, we are able to predict out-of-sample implied volatility surfaces accurately. Moreover, the impact on the Solvency Capital Requirement has been evaluated for different points in time. The impact depends on the initial state of the market and may vary between −46% and +52%.
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17 July 2025Preparing for our International Client Conference 2026
The biennial global Ortec Finance Client Conference 2026 will span two full thought-provoking days, featuring engaging, innovative sessions.
Asset Management / Banks Retail and Private / Housing Associations / Independent Financial Advisors / Insurance Companies / Pension Funds / Sovereign Wealth Funds / Wealth Management / Asset Allocation / Asset Liability Management / Climate Scenarios Sustainability / Economic Scenario Generator / Goals-Based Investing / Goals-Based Planning / Performance Measurement and Attribution / Real Estate Financial Planning / /Ormetrics/Corporate/Home/Solutions/Real Estate Management / Real Estate Financial Planning / /Ormetrics/Corporate/Home/Solutions/Retirement Planning / Risk neutral scenarios / Strategic Risk Management / /Ormetrics/Corporate/Home/Solutions/Wealth Planning and Monitoring