Stochastic Deflator for an Economic Scenario Generator with Five Factors

Po-Keng Cheng () and Frédéric Planchet ()
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Po-Keng Cheng: LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon

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Abstract: In this paper, we implement a stochastic deflator with five economic and financial risk factors: interest rates, market price of risk, stock prices, default intensities, and convenience yields. We examine the deflator with different financial assets, such as stocks, zero‐coupon bonds, vanilla options, and corporate coupon bonds. We find required regularity conditions to implement our stochastic deflator. Our numerical results show the reliability of the deflator approach in pricing financial derivatives.

Keywords: stochastic deflator; asset/liability management; time discretization; economic scenario generator; best estimate (search for similar items in EconPapers)
Date: 2019-02-06
Note: View the original document on HAL open archive server: https://hal.science/hal-01730072v4
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Working Paper: Stochastic Deflator for an Economic Scenario Generator with Five Factors (2019)
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