B+H Economic Scenario Generator
Grid-Enabling the ESG
Akash Chopra
31 May 2016
Introduction to Barrie + Hibbert
+ Founded in 1995
+ Industry leader in modelling financial market risk
– Economic Scenario Generator
– Annuity and DB Pension Asset-Liability models
+ 60 staff based in Edinburgh and London
– Actuaries, economists, physicists, software developers
+ Grown from UK Life provider… (2004)
– 70+% of UK Life Groups
+ …to European Life Group provider… (2005)
– Majority of European CRO forum
+ …to the leading global provider (2006+)
– North America, Asia, Australia, South Africa, global consulting firms
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What is the ESG?
+ Multi currency stochastic asset model
– In English please…
+ Monte-Carlo simulator
– Modelling of economic variables and asset prices/returns
+ Calculates the distribution of variables into the future
– Interest Rates
– Inflation
– Exchange Rates
– GDP
– Equities
– Bonds
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Why do our clients want the ESG?
+ Require sophisticated modelling of risk – need accurate pricing for
assets/liabilities
– Regulation - FSA
– Awareness
+ Reporting
– Quarterly reports to regulators, market
+ Auditors
– Justification of modelling assumptions
– Academically rigorous models
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One cog in a complex machine
Market
Data
Calibration
Portfolio
Data
ESG
Accounts
Liability
Model
Reports
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Typical ESG Simulation
+ No such thing!
+ Simple model
– Single economy
– A few assets (equities, bonds)
– 30 year horizon in annual steps
– 1000 trials
– 1-2 hour run time
+ Complex model
– 10 economies
– Hundreds of assets
– 60 year horizon in monthly steps
– 10000 trials
– Potentially a very long run time! In practice, 24-48 hours.
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Typical ESG Usage
+ Life clients
– Need to produce quarterly figures to satisfy regulators and market
– Figures need to be produced in short timescales (days)
– Stale data is a problem
+ Need to use latest market data
+ Timely reports indicative of good management
– Preparation is key
+ Building up results incrementally as data becomes available
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Why HTC?
+ Reducing sampling error
– Increase number of trials - sampling error reduces slowly ~ 1 /
(# trials )
+ Many different “what if?” scenarios are run
– Interest rate risk
– Credit risk
– …up to 75 different scenarios in some cases
+ Human error!
– Garbage in, garbage out
– Re-running scenarios
+ Makes more sophisticated analysis possible
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Nested simulation
+ “Nested simulation” or “stochastic on stochastic” involves
generating a set of inner scenarios within a set of outer scenarios
e.g.:
Outer Scenarios
Inner Scenarios
+ Why?
– Estimate liability values at times other than t = 0
+ Challenges:
– In principle requires huge number of scenarios ~ 10002 = 1,000,000
– Least Squares Monte Carlo
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Which HTC Framework?
+ No desire to write our own
– Mature products already exist
– Let’s not re-invent the wheel
+ Ease of integration
– High level of documentation and support
– Must fit into our application, not the other way round
– ESG is a .NET application, so being able to avoid COM would be a bonus
+ Digipede fits the bill
– Excellent introductory material (examples, tutorials) and email/phone support
– Very little work required to get a basic implementation up and running
+ Several “grid design patterns” provided as standard
+ Flexible enough for us to tweak these to suit our purposes
– .NET application – straightforward API usage
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Problem Decomposition
+ Monte-Carlo is ideally suited to HTC
+ Digipede’s terminology
– A job consists of many tasks
– Each task is independent
+ Barrie + Hibbert terminology
– A simulation consists of many trials
– Each trial is independent
+ Does 1 trial = 1 task?
– Depends on computational effort involved in 1 trial…
– …which depends on the model complexity
– User can choose “unit of decomposition”
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Data Management
+ Setup
– Model needs to be sent to each agent on the grid once per job
– Modified existing Digipede pattern (Executive Worker) to accomplish this
+ Tasks
– Require very little input data
– Potentially generate large amounts of output data
– Bypassed Digipede return mechanism for performance reasons
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The User Doesn’t Want To Know
Client Requirements for HTC
+ Now
– Order of magnitude improvement in performance
– Quicker production of quarterly figures
+ Future
– Reduced sampling error
+ 100 times the number of trials?
– Complex liability pricing at t ≠ 0
+ Nested simulation
+ Anywhere from 2 – 1000 times the number of trials
– More frequent scenario generation
+ Weekly runs
+ Daily runs?
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Our Requirements
+ Make life easy for our clients
+ “I need the results ASAP”
– Dynamically adapt task size to match simulation/machine characteristics
+ “I need the results in X hours”
– Use minimum amount of resource necessary to accomplish job within deadline
+ “Do not load any machine too heavily”
– Desktop scavenging
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