AXIS Daily Hedging Module

The AXIS Daily Hedging Module is a powerful tool for supporting a dynamic hedging program. Daily Hedging will produce up-to-date hedge analytics including all the typical Greeks related specifically to the GMXB benefits in a portfolio of Variable Annuities and Seg Fund Annuities. Similar to the companion Hedge Projection Module, Daily Hedging is fully integrated with the Annuity Module and the rest of the system, sharing common code and using the same AXIS models.

The primary function of the Daily Hedging Module is to automate the overnight production of a user-defined panel of Greeks and option values based on the current in-force portfolio. Key features include:

  • Daily run capability
    • All month-end restrictions have been removed in Daily Hedging to allow calculating Greeks as of any day of the month based on an inforce file produced on possibly an earlier date
    • A roll-forward feature allows users to project the inforce file from its inforce date to a future calculation date based on the pricing assumptions and based on realized historical market information
  • Anticipating possible market movements
    • Greeks are calculated not only for the current market environment but also for potential market movements during the following days (potential market movements can be simple shocks to any one index value, or yield curve duration, or complex shocks affecting multiple market parameters simultaneously)
  • Automated batch scheduling
    • Special batch processes define the parameters of the required risk metric reports
    • Scheduling options allow for automated runs overnight using GridLink managed server farms

In addition to the production of daily Greeks, the AXIS Daily Hedging Module also supports the generation of Attribution Analysis reports. This allows analysis of the changes in any given metric calculated at two points in time, and attribution of the total change to the various potential causes, such as changes in selected parameters, market inputs or inforce data. Attribution Analysis can help you assess how effective a hedging strategy is: How high the basis risk is, and if there are any significant factors that are left unhedged. Attribution Analysis reports can be designed by the user, and are fully automated, easy to run and integrated with Daily Hedging.

Daily Hedging is related to the existing AXIS Hedge Projection Module that projects hedging strategies to model how they affect the company performance. Both modules share the Asset Pricing Model which defines the market pricing paradigm under which the Greeks are calculated, and the specific Greeks to be calculated. The two modules can now be used together: Hedge Projection to model a hedging strategy within actuarial projections and Daily Hedging to support the execution of that strategy.