Testing Stochastic lnterest Rate Generators for lnsurer Risk and Capital Models

Stochastic models for interest rates are reviewed and fitting methods are discussed. Tests for the dynamics of short-term rates are based on model fits. A method of testing yield curve distributions for use in insurer asset scenario generators is introduced. This uses historical relationships in the conditional distributions of yield spreads given the short-term rate. As an illustration, this method is used to test a few selected models.