{"about":{"site":"https://codewithpapers.app","non_affiliation":"Code with Papers and Syntology are not affiliated with, endorsed by, or sponsored by Papers with Code, Meta, or the pwc-archive mirror.","licence":"CC BY-SA 4.0","licence_url":"https://creativecommons.org/licenses/by-sa/4.0/legalcode","attribution":"https://codewithpapers.app/attribution","modified":"archive material modified by Syntology; see the attribution page"},"url":"/paper/building-and-testing-yield-curve-generators","title":"Building and Testing Yield Curve Generators for P&C Insurance","arxiv_id":"1912.10526","date":"2019-12-22","proceeding":null,"authors":[],"abstract":"Interest-rate risk is a key factor for property-casualty insurer capital. P&C\ncompanies tend to be highly leveraged, with bond holdings much greater than\ncapital. For GAAP capital, bonds are marked to market but liabilities are not,\nso shifts in the yield curve can have a significant impact on capital.\nYield-curve scenario generators are one approach to quantifying this risk. They\nproduce many future simulated evolutions of the yield curve, which can be used\nto quantify the probabilities of bond-value changes that would result from\nvarious maturity-mix strategies. Some of these generators are provided as\nblack-box models where the user gets only the projected scenarios. One focus of\nthis paper is to provide methods for testing generated scenarios from such\nmodels by comparing to known distributional properties of yield curves.\n  P&C insurers hold bonds to maturity and manage cash-flow risk by matching\nasset and liability flows. Derivative pricing and stochastic volatility are of\nlittle concern over the relevant time frames. This requires different models\nand model testing than what is common in the broader financial markets.\n  To complicate things further, interest rates for the last decade have not\nbeen following the patterns established in the sixty years following WWII. We\nare now coming out of the period of very low rates, yet are still not returning\nto what had been thought of as normal before that. Modeling and model testing\nare in an evolving state while new patterns emerge.\n  Our analysis starts with a review of the literature on interest-rate model\ntesting, with a P&C focus, and an update of the tests for current market\nbehavior. We then discuss models, and use them to illustrate the fitting and\ntesting methods. The testing discussion does not require the model-building\nsection.","url_abs":"http://arxiv.org/abs/1912.10526v1","url_pdf":"http://arxiv.org/pdf/1912.10526v1.pdf","source":{"archive":"pwc-archive (Hugging Face), CC BY-SA 4.0","snapshot":"2025-07-28","licence_url":"https://creativecommons.org/licenses/by-sa/4.0/legalcode","row_kind":"abstracts"},"code_links":[{"paper_slug":"building-and-testing-yield-curve-generators","repo_url":"https://github.com/casact/ef_yield_curve_generators","is_official":1,"mentioned_in_paper":1,"mentioned_in_github":0,"framework":"none","reach":null}],"tasks":[],"methods":[],"datasets_introduced":[],"methods_introduced":[],"results":[],"syntology":{"atlas_url":null,"mcp":null,"developers":"https://syntology.ai/developers"},"arxiv_metadata":null,"syntology_extracted_results":null}