A01: Using Least-Squares Monte Carlo for capital calculation

Document description

Calculating capital in a Solvency II internal model can be complex and runtime intensive due to the nested stochastic nature of the problem.  Least-Squares Monte Carlo (LSMC) technique provides an efficient and accurate solution to this problem.  This case study describes LSMC theory and practical application to life office risk aggregation and capital calculation.  We will also discuss wider applications in risk management and contrast with commonly known curve fitting and replicating portfolio methods.