Study of Academy of Actuaries SLV compared to RS-DMRP Sep 2011 Start Date (Study of Academy of Actuaries SLV Model)

This book reports on an independent study of the Academy of Actuaries Stochastic Log Volatility Interest Rate Model. This is not in any way commissioned by the Academy of Actuaries. This is the part of a series to review the Academy Economic Scenario Generator.

This book reports on comparisons of the SLV to the RS-DMRP for the starting yield curve of September 2011.

The Academy SLV model is a 3 factor interest rate model. The long term yield mean reverts to a target subject to stochastic volatility. The spread mean reverts to a target. The volatility of the long term rate is mean reverting.

This model is compared to the author's Regime Switching version of the DMRP. The Double Decay model of Beaglehole Tenney which is similar in some ways to the DMRP was praised by Bernanke for use in modeling the term structure.

This book is most useful for actuaries who use the Academy of Actuaries SLV model and ESG. It is also useful to actuaries who use the DMRP model. The DMRP is also sometimes called the Two Factor Black Karasinski model. That model is widely used in Europe.

The material is at a basic level of instruction for users who do not have a mathematical background.

The material can be used by actuaries, regulators, risk managers, and those involved in providing services to the above based on interest rate risk management. It is less oriented to retail investors or insurance buyers or brokers. All use is at the user's own risk with no warranty.

Actuarial students and finance students may gain insights into interest rate models and risk management using this material.