Economic Scenario Generator is a software tool that many financial institutions utilize to generate stochastic interest rates, equities, credits, FX, and/or other asset classes to fulfill their various needs. For example, an investment banker may utilize Risk-Neutral ESG (no additional expected return from investing risky asset) to price exotic derivatives or review hedging strategies. Or, an insurer may utilize a Real-World ESG (realistic ESG with risk premium) to find the reserve requirements to meet regulatory demands.
- Pull necessary market data from the Internet
- Implement American Academy of Actuaries ESG in Python
- Add Risk-Neutral ESG
- Fast generations of scenarios by using numpy optimization
- Push the scenarios as JSON form to www.financescript.com by using REST API
This tool would be used for computing the discount rates in the equity researches in FinancialScript.com
In traditional equity research, an analyst would calculate the expected cash flow and then discount them by the risk-adjusted rates, which are mostly deterministic and highly subjective. Using the monte carlo simulations could reduce the valuation errors, and also allow us to get a range of values within some confidence levels.
This tool should work in any version of Python 3.5+
All the necessary libraries are/will be included in requirements.txt
pip install requirements.txt
American Academy of Actuaries published Excel workbook which contains Excel code that generates a lot of interest rate and equity. Our ESG tool will mostly implement this tool, and build additional features listed above.