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Flexible Scenario (August, 2017)

Article Summary:

[Note: Fixed Scenario Format has become a feature-to-be-removed starting in AXIS version 2018.01.01.] The Flexible Scenario is a new design which allows the user to create a customized scenario based on a particular modeling application. The new design is more flexible, efficient and can hold more information than the existing 29-column Fixed Format Scenario. This article provides an overview of the Flexible Scenario design available in AXIS versions 20130401 and later. Further details about the new design and information on transition of datasets from Fixed Format Scenario to Flexible Scenario, including portfolio rate capture setup, can be found in the “Guide for Transitioning From Fixed To Flexible Scenario Format” attached at the end.


What is the Flexible Scenario?

A Scenario in AXIS is an object that holds a projection of Economic parameters, for example interest rates or equity returns, and other values such as user defined rates, which can be used throughout the system. The same Scenario is used in all modules and at all levels of the system (Cell, Subfund, Fund and Office) to ensure consistency of assumptions.

The Flexible Scenario is a new design which allows the user to create a customized scenario based on a particular modelling application. In the Flexible scenario information is grouped into Markets. There are different Market Types for different purposes, for example yield curves are modelled as Interest Rate Markets and equity indices are modelled as Equity Markets. Markets can have different Shapes depending on the amount of data needed. At the heart of the Flexible Scenario is a Scenario Format object which allows the user to specify how many instances of each type of Market are required by their model.

Why have we introduced the Flexible Scenario?

The existing Fixed Scenario Format consists of 29 columns of data with predefined meanings. In the past this format was adequate for most purposes. There are two trends which require us to re-think this approach.

AXIS users are asking to put more information into the Scenario. Hedging may require modelling multiple equity indices. Portfolio rate products may require projecting earned rates for multiple business segments under multiple accounting paradigms. Some applications make extensive use of User Defined columns. The need to accommodate these diverse requirements makes a “one size fits all” approach impractical.

Modern applications such as hedging and stochastic modelling make much more extensive use of the Scenario than most traditional actuarial applications, making efficiency a greater concern than ever. When tens of thousands of scenario are generated and stored, eliminating unused columns from the scenario is a means of improving performance.

Allowing the user to design a Scenario Format containing exactly the data required for their model provides new flexibility and increases the model efficiency at the same time.

Can multiple interest rate markets be modelled?

Started in version 20140501, AXIS now allows users to model multiple Interest Rate Markets in a single economic scenario. The potential applications of multiple yield curves include stochastic credit spreads, stress testing, and multi-currency models. Please see KB on Multiple Interest Markets linked below for further details.

Where can you find out more?

Additional information related to the Flexible Scenario and the process of switching to the Flexible Scenario can be found in the attached "Guide for Transitioning From Fixed To Flexible Scenario Format" and "Guide to Using Flexible Scenarios" documents.

Note: Starting with AXIS 2018.01.01 released 03 August 2017, opening a dataset in Fixed Scenario format will require activating the feature-to-be-removed feature code #590. The user will be prompted to either automatically activate the feature code password or manually enter the feature code password received from GGY. Please note that to enable the automated activation functionality, AXIS Library Files (available at www.ggy.com/client/Axis/Download) need to be updated with the latest required components.

 

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