How to Define the Quality of an Economic Scenario Generator to Assess the Best-Estimate of a French Savings Contract in €?

Résumé

Applying a Mark-to-Market approach to evaluate the fair value of the insurer’s commitment (best-estimate) for a saving French contract in €, implies having the prices of options and guarantees of insurance policies. Since this information is not observable on an organized and liquid market, the calculation is made in a Markto-Model framework. The calibration and validation of the economic scenario generator (ESG), used to evaluate the best-estimate, by comparing the simulations to the observed data as part of a statistical approach, cannot be considered. The ESG is then calibrated and validated with reference to the financial instruments (caps, floors, swaptions, etc.), derived from the modelled risk factors, without justifying a direct link or a bijection between these financial instruments and the liability options (see for example Laurent & al. [2014], Planchet & al. [2009], Armel & Planchet [2018]). The purpose of this paper is to examine how we can define the quality of an economic scenario generator to evaluate the best-estimate of French savings contracts in €.