An effective equity model allowing long term investments within the framework of Solvency II

Mohamed Majri (1) , François-Xavier de Lauzon (2)

1 SMABTP
2 SMABTP

We propose an effective equity model adapted for medium term and long term risk assessment. One of its specific aspects is to allow an asymetrical dampening of the equity risk (called the dampener effect) conditional to the cyclical level of equity prices and to enable accurate Value At Risk assessements for medium and long term horizons (1 year and beyond). For a set of selected equity indexes we compare its relevancy for the 1-year 99.5% Value At Risk (VaR) assessment with the different releases of the Solvency II dampener equity models. In a second step we test its relevancy for VaR assessments beyond a 1 year investment horizon. We show in our analysis that this alternative model gives quite good results and outperforms widely the others tested. It appears particularly suitable for insurance companies and pension funds given their medium or long term asset management process.

Mots clés: Value-At-Risk; Long term Equity Risk Assessment; Solvency II; Dampener; Standard Formula; Back Testing

Domaines: Gestion des risques [q-fin.RM]

Mohamed Majri, François-Xavier de Lauzon. An effective equity model allowing long term investments within the framework of Solvency II. 2013. ⟨hal-00847887⟩