Please use this identifier to cite or link to this item: https://ah.nccu.edu.tw/handle/140.119/139821


Title: How can an economic scenario generation model cope with abrupt changes in financial markets?
Authors: Hsieh, Ming-Hua
Lee, Yi-Hsi
Kuo, Weiyu
Tsai, Chenghsien Jason
謝明華;蔡政憲
Contributors: 風管系
Keywords: Economic scenario generation;Life insurance;Risk management
Date: 2021-05
Issue Date: 2022-04-11 15:11:23 (UTC+8)
Abstract: Purpose
It is quite possible that financial institutions including life insurance companies would encounter turbulent situations such as the COVID-19 pandemic before policies mature. Constructing models that can generate scenarios for major assets to cover abrupt changes in financial markets is thus essential for the financial institution's risk management.

Design/methodology/approach
The key issues in such modeling include how to manage the large number of risk factors involved, how to model the dynamics of chosen or derived factors and how to incorporate relations among these factors. The authors propose the orthogonal ARMA–GARCH (autoregressive moving-average–generalized autoregressive conditional heteroskedasticity) approach to tackle these issues. The constructed economic scenario generation (ESG) models pass the backtests covering the period from the beginning of 2018 to the end of May 2020, which includes the turbulent situations caused by COVID-19.

Findings
The backtesting covering the turbulent period of COVID-19, along with fan charts and comparisons on simulated and historical statistics, validates our approach.

Originality/value
This paper is the first one that attempts to generate complex long-term economic scenarios for a large-scale portfolio from its large dimensional covariance matrix estimated by the orthogonal ARMA–GARCH model
Relation: China Finance Review International, Vol.11, No.3, pp.372-405
Data Type: article
DOI 連結: https://doi.org/10.1108/CFRI-03-2021-0056
Appears in Collections:[風險管理與保險學系] 期刊論文

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