Methods used by Insurers to stress the yield curve

• standard formula
• stochastic models
• mean reversion models
• Vasicek
• Hull-White model (extension of Vasicek - better at initial fit)
• multi factor models
  • Principal Component Analysis
  • (actually a statistical factor model and not a structural factor model)
  • Heath Jarrow Morton

mean reversion models

definition

Actual use cases of PCA by Life Insurers

• duration matching
• hedging
• capital models

Regulatory Framework

questions

• where does Nelson-Seigel-Svensson fit in ?
• to what extent does regulatory framework influence our choice of model and discourage a novel approach

to-do

• verifying this information