Market-consistent economic scenarios are at the core of the valuation of liabilities under Solvency II, certain risk-based capital regimes in Asia, liabilities under IFRS 17, and valuation of market risk benefits under Long Duration Targeted Improvements. As spot market data is a key input of such valuation frameworks, establishing market-consistent but stable long-term volatility assumptions is an increasing challenge. This paper explores options available to insurance companies.
Article
Estimating long-term implied volatility for the valuation of insurance liabilities
ByAlexandre Boumezoued, and David Baranes (S&P Global)
28 July 2022