Take advantage of our extremely flexible and powerful actuarial workbench for the design and pricing of insurance products and hedge assets. Numerix cross-asset expertise provides a single unified platform for the most basic to exotic designs—including all types of Variable Annuities, Index Annuities and hedge assets.
Our CrossAsset Excel Workbench includes models across all asset classes: credit, equities, rates, foreign exchange, commodities and inflation. We also provide the industry’s only hybrid model framework, which incorporates complex stochastic process for capturing correlation in a way that is consistent with market-observed behavior.
Model Consistency Across Liability And Investment Sides of Your Business
As best practices in achieving a unified modeling framework across different functions within an insurance company continues to evolve--many companies are faced with the challenges of instilling a capital markets focused framework for both their product design and investment groups.
The implications of an silo-ed approach can impact the effectiveness of hedging strategies. Today, many institutions will utilize one analytic approach by the actuaries to produce Greeks and risk factors, while the investment side of the house will utilize different models for valuation and hedging the liabilities.
Numerix model library is the foundation of many of the world’s largest trading and risk platforms and this infrastructure can be easily utilized for product design of Variable Annuities and EIAs helping companies institute a consistent price framework and enhance the effectiveness of hedges.
Numerix Hybrid Model
Insurance companies are looking at new ways to hedge risk in a way that is consistent with market-observed behavior. The key is bringing together interest rate, equity, volatility, credit and other factors within a unified, efficient model framework. To accomplish this, it is necessary to incorporate stochastic processes across multiple asset classes and factors. This requires a simultaneous calibration process to accurately capture correlation between volatility factors. Numerix has developed a hybrid model framework that provides a structure for designing and calibrating such a model.
The concept behind the hybrid model framework is that the best model is selected for each underlying. These “component” models are individually calibrated and then linked together through a correlation matrix that defines the “hybrid” model. A joint calibration is applied, allowing, volatility to be represented in a market-consistent manner. This approach offers a high degree of flexibility in the selection of various single- and multi-factor models across “n” economies for baskets of arbitrary size.
Numerix scripting language allows for quick product design including Variable Annuities, Equity Index Annuities and all capital market derivative instruments.
Numerix Hybrid Model helps hedge risk that is consistent with market-observed behavior, bringing together all risk factors.
Numerix Inflation Market Models (IMM): If we take the scenario of the post-credit crisis environment, Numerix inflation models help capture the volatility that standard approaches didn’t address in the past. Numerix IMM suite includes: The Standard IMM (Forward CPI rates modeled as lognormal processes), Heston IMM (with Heston/CIR stochastic volatility processes), and SABR IMM (with SABR stochastic volatility processes). As a result, modeling the smile and capturing the stochastic nature of volatility has become critically important for managing inflation derivatives.
Convergence in High-Order Greeks
One of the biggest concerns in using more advanced models is computation time, especially for hedging higher-order Greeks (such as IR gamma) that may require millions of paths to achieve convergence. Numerix uses low-discrepancy sequences—proprietary extensions of Sobol sequences that have better clustering properties in higher dimensions. With this resource, we have found that IR gamma converges almost as rapidly as the valuation.
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