22 February 2017
Services
 
 

 

The issue of retirement benefits is a major economical driver of western countries.
The move from Defined Benefit to Defined Contribution structures and the corresponding emergence of much more flexible Variable Annuities offered by insurers lead to a boom in complexity in terms of pricing and risk of pension plans. Regulatory authorities recommend the use of stochastic modelling in a field where actuarial methods previously prevailed.

The first issue is to design a long-term hybrid interest rates, equity, Credit and inflation model, which has to be at the same time robust, tractable and meaningful.

The mix of market-inspired modelling for the asset part and the unpredictable behaviours of policy holders on the liability side leads to “nested stochastics” simulations. This leads to numerous challenges like a reasonable computation load, fast and accurate sensitivities to risk factors.

Zeliade modelling skills and unique expertise in the field of advanced Monte Carlo simulations based on quantization techniques and generalized Malliavin calculus bring efficient solutions to these two challenges. Tied to our knowledge of the products and the associated regulatory constraints Zeliade can design full-featured and flexible software tools either for risk management teams or for their validation and control. Examples of such tools are risk assessment, product development, pricing, valuation and cash flow testing tools.

CASE STUDY

Aleva Advisor LLP

Aleva Advisor LLP, a leading actor in the Pension Fund market that implements improved management strategies for pension funds, wanted to demonstrate the superiority of its strategy to potential clients.  The company required a risk assessment tool that could simulate accurately various management strategies.

Aleva was not satisfied with simulation software packages currently available on the market, as either they were a black box with too many parameters making it difficult for outsiders to understand, or their underlying simulation engine was too weak and did not incorporate the latest developments in quant research (such as dynamic models).

Aleva asked us to develop an application that simulates its proprietary management strategy against a traditional management strategy. This had to be done in the context of realistic behaviours for both the fund’s underlying population as well as the market’s, using a limited number (10) of parameters that are understandable for everyone.

In a few months’ time, we were able to design and implement a fully functional risk assessment tool that was leapfrogging any package available on the market.

Client Testimonials :
Eric Viet, CEO, Aleva Advisor LLP
“Corporate covenant is the main risk of a UK occupational pension fund, but very few have attempted to quantify the covenant risk. Considering the complexity of the problem, Zeliade has developed for ALEVA a reliable tool to assess the quality of a covenant and its interaction with the investment strategy of scheme. The tool is now a very powerful piece for the marketing of ALEVA’s pension buy-out solution”

 

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