• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

Dynamic solvency

D

D chandra shekhar

Member
quote from ch-16 page 15 Model(2) "If future projected balance sheets themselves require stochastic calculations, this can present significant modelling challenges and might necessitate the use of approximations such as closed form solutions."
what are these approximations and closed form solutions?
 
D chandra shekhar said:
quote from ch-16 page 15 Model(2) "If future projected balance sheets themselves require stochastic calculations, this can present significant modelling challenges and might necessitate the use of approximations such as closed form solutions."
what are these approximations and closed form solutions?
Click to expand...

http://mathworld.wolfram.com/Garman-KohlhagenFormula.html

is a closed from solution to the expected discounted value of european optio payoffs.

Basically formula for a the value of a derivative vs risk-neutral montecarlo.

Approximations could be via:

- portfolio replication (try and find a set of derivatives that approximate value of contract and which have closed form formula. Use output of 1st esg as input to formulae)
- proxy functions. (run monetcarelo valutoin with lots of different sensitivities and approximate a closed form formula by regression)
 
You must log in or register to reply here.
Back
Top