(Jan 29, 2009)

One of the challenges in modelling financial portfolios is the concentration of risk arising from the fact wealthier people will usually have significantly higher benefits than the less well-off.

In a small annuity or pension scheme, the stochastic risk (the risk surrounding who dies when) can be highly significant, often the most significant risk the scheme runs. Here is an analysis of one small portfolio, showing a not untypical concentration of risk.

Typical concentration in a pension scheme

It is unsurprising that there is demand to analyse such an important characteristic in a multiplicity of ways. One technique we have introduced recently is geographic heatmap analysis. 

This is a visualisation technique that allows us to map the spread of…

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Tags: concentration risk, visualisation, mapping

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