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Economic Scenario Generation – putting it together
By Svetlana Borovkova, Head of Quantitative Modelling
In last week’s column, I discussed common pitfalls of Economic Scenario Generation, such as implausible or too wide-ranging scenarios. Today, I would like to address a related topic: how to simultaneously model multiple economic variables, such as interest rates and stock market returns.
Relationships between financial variables such as interest rates and equity returns are complex and dynamic, so their realistic modelling is a major challenge in designing a good Economic Scenario Generator.
