In this research paper we discuss one of the main challenges for IFRS 9 model developers: the inclusion of forward-looking information such as macro-economic forecasts into the expected loss model. Using a relatively simple example, we illustrate how a model that seems promising at first sight can be sub-optimal. We propose an alternative, more direct approach for the use of macro-economic forecasts in the expected loss framework.
Some loans or mortgages may be (partially) prepaid before maturity. This may leave the bank with missed interest rate income for which they may apply penalties. This paper assesses the different methods to calculate such penalties.
This research paper identifies an optimal Nelson-Siegel model for the 12-month ahead (density) forecasts of the yield curves using Bayesian inference theory. The model can be used to determine the capital requirements for interest rate risk within the Solvency II framework
In this research paper different interest rate models are investigated to determine which model satisfies the Solvency II requirements and how the models affect the performance measures. The paper concludes that the best choice depends on which performance measure is preferred.