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Nested stochastic modelling in SII

V

Viki2010

Member
Hi, does SII prescribe Nested Stochastic modelling techniques? Or would the NST be only applicable under Internal Model and at a voluntary choice of a company?
 
Viki2010 said:
Hi, does SII prescribe Nested Stochastic modelling techniques? Or would the NST be only applicable under Internal Model and at a voluntary choice of a company?
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I agree, I don't think that Solvency II requires nested stochastic calculations.

Some companies might choose to perform nested calculations. For example, we can calculate the SCR by simulating the balance sheet to find our 1 in 200 year scenario. We might need to perform further simulations to calculate the cost of guarantees in each of these simulations, so we have simulations within simulations (ie nested stochastic). But we might value the guarantees using a closed form solution (eg Black-Scholes) or we might not even have any guarantees, so there are a number of reasons why we might not need nested calculations.

Best wishes

Mark
 
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