20.4 Future Research

Correlations:

• Between LoBs; asset & liabilities; over time (low most of the time and high in a crisis)

• Can materially alter the optimal portfolio

Models of unpaid losses are not explanatory model

• Forecast mean and distribution but,

• Do not predict loss payments based on economic variables (interest rates, inflation, GDP)

• Sometimes inflation is hypothesized but rarely explicitly developed from the historic economic data

\(\hookrightarrow\) Model is unable to use the results of ESG to make meaningful predictions

• Asset model do this better (equity, bond pricing)

Alternative is to treat the correlation parameters and inflation sensitivity as random variables, then models can be created with parameter estimates