Presentation (translated) by Jos Berkemeijer at the IPFOS 'Directors Conference" in the Netherlands. Behavioral asset models are the most effective way of managing assets and liabilities risk in a financial institutions portfoilio. This presentation focuses on pension funds. http://www.ipfos.eu/bestuurders-conferentie-2015/

1. Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 1April 2, 2015
Behavioral Economic Scenario Stress Testing
Jos Berkemeijer, Managing Partner Symetrics
The value of economic scenarios
from a risk perspective

2. Agenda
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 2April 2, 2015
1. What is risk?
2. The new economic reality
3. Models
4. Looking forward?
5. BEST: Behavioral Economic Stress Testing
6. Key questions
7. Finally

3. What is risk? Estimating risks…..
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 3April 2, 2015
How many bubbles are in a bottle of Champagne?
?

4. What is risk? Markowitz approach
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 4April 2, 2015
Risk = σ
X ~ N(μ,σ2)

5. What is risk? Spread = Risk?
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 5April 2, 2015

6. What is risk? Taleb’s risk definition
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 6April 2, 2015
What company is most risky to invest in?
0
1
2
3
4
5
6
1 2 3 4 5 6 7 8 9 10
Stock price A Stock price B
Nassim Nicholas Taleb
Black Swans
Antifragile

7. The new economic reality: low interest rates
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 7April 2, 2015

8. The new economic reality: Real rate
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 8April 2, 2015

9. Models: Linear thinking
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 9April 2, 2015
• Input = Output
• The future is a linear extrapolation of the past
• ‘Mean reversion’
• ‘Herding’
• The best estimate for tomorrow is today
Think Different

10. Models: Evaluation by Guus Boender (†)
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 10April 2, 2015
Source: De Actuaris : Uitspraken Guus Boender (1955 – 2014)
• We have the bad luck that this crisis since 2009
fell outside the range of thousand
• A model cannot take into account things
that have not yet happened
• Non-normal distributions
occur more frequently
• The probability tail is thicker
• We need more data
• Never consider models as absolute truth

11. Looking forward? Predictions fail
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 11April 2, 2015
Dutch pension fund feasibility test
=
Looking 60years ahead….

12. Looking forward? Informed decision making
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 12April 2, 2015
• Predictions
• ‘Beliefs’
• Understanding Risks
• ‘Informed Decision Making’
• ‘In Control’
• ‘Countervailing Power’
1
2 N(μ,σ2) NL(μ,σ2,B,T)
• Stochastic
• ‘At Random’
• ‘Behavioral Rules’
• ‘Tail Risks’

13. BEST: Behavioral Economic Stress Testing
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 13April 2, 2015
1. Oude modellen
- Asset Classes
- Scenarios defined
by experts
2. BEST Model
- Asset Classes
- Economic Data
+ =
+ =
Scientific Behavioral
Algorithms
1. Banks
2. Consumers
3. Markets
A. More expressive power
B. Better understanding
C. In Control
Beliefs
BEST consequences:

14. BEST: Examples of Economic Scenarios
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 14April 2, 2015
1. Central Scenario
2. Recovery
3. Muddle Through
4. Stagflation
5. QE US Edition
6. QE ECB Edition
7. Nominal GDP Targeting
8. Credit Crisis
9. China stops buying US bonds
10.Yen Depreciation

15. BEST: Stresstesting
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 15April 2, 2015
Regulatory stress testing
Much testing….., little stress?
Behavioral
Rules

16. BEST: EIOPA Pension fund stress test 2015
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 16April 2, 2015
EIOPA Pension fund stress test
• EU-wide stress test among pension funds
• Establish test criteria
• selection NL pension funds,
by Dutch regulator (DNB)
• Macroeconomic stress scenarios
Gabriel Bernardino. Chairman EIOPA
With or without ‘Behavioral?

17. BEST: Stagflation 2015, Example
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 17April 2, 2015
Risk-Return Development 2011-2015
Average Dutch Pension Fund
Scenario: Stagflation Period 2011-2015
Efficient Frontier 2011 – 2014
Average return 2011 – 2014
Stagflation without Behavioral rules
Stagflation with Behavioral rules
Sharpe
Sortino
Minimum Change
–
Period 2011-2015
Risk
AverageReturn

18. BEST: Scenarios & Optimalisation
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 18April 2, 2015
Risk Appetite Check
1. Capital requirements
2. Minimal capital requirement
3. Funding ratio

19. BEST: Is your pension fund ‘Economic Proof’?
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 19April 2, 2015
Bad weather scenarios
Feasibility Test
Stresstesting Risk Appetite
Short term Long term
Required Capital Check ALM Study
Strategic Asset Mix
Critical Values IIICritical Values I Critical Values II
Behavioral Economic Stress Test
0 year 15 year 60 year

20. BEST: Dynamic Investment Policy
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 20April 2, 2015
BEST Informed Decision Making
• Step by step to a dynamic investment policy: Economic Trigger Points
• From ‘Damage Control’ to ‘preventive & timely adjustments’ : Economic Alert Indicators
• Scenario reporting on a quarterly basis: Aside from Benchmarking, also Scenario-updates
tijd

21. Key Questions
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 21April 2, 2015
What are your planned actions?
1. feasibility test 2015
2. ALM 2015
3. Stress test 2015?
4. ‘Holistic Balance Sheet’
5. Dynamic Investment Policy?
BEST or NOT SO BEST ?
1. Best of Class?
2. Demonstrably ‘In Control’?
3. Informed Decision Making?
4. Countervailing Power?

22. Finally
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 22April 2, 2015
Why stress test the old way,
if you can do it the BEST way?

23. Contact Symetrics
Pension conference The Netherlands - Presentation by Jos Berkemeijer - Symetrics©2015 23April 2, 2015
Contact information
Branch Office
Symetrics B.V.
De Corridor 5 C
3621 ZA Breukelen
The Netherlands
Tel. +31 34 671 5065
W: http://www.symetrics.eu/
Corporate Office
Symetrics B.V.
Het Rietveld 55a
7321 CT Apeldoorn
The Netherlands
Tel. +31 55 201 8829
W: http://www.symetrics.eu/
Contact information
Martijn van Eck, Managing Partner
Tel. +31 6 525 68 775
vaneck@symetrics.eu
Jos Berkemeijer, Managing Partner
Tel. +31 6 46 12 0660
berkemeijer@symetrics.eu
Mrs. Anneke Stolk, Corporate Secretary
Tel. +31 34 671 5065
stolk@symetrics.eu
London, United Kingdom
Symetrics is a member of London FinTech Incubator Level39
W: http://www.level39.co.uk/members