Hi,I'm looking for an external economic scenario generator, which can produce real world scenarios and if possible also risk neutral scenarios (with similar dynamics). The tool has to be user-friendly, but complex enough to capture realistic behaviour of all asset classes. I have come across the following companies:- DFA Capital - GEMS model- Barrie & Hibbert- Deloitte- ORTECAre there any other external providers which are worth considering?Anyone has a view on the models of the companies mentioned above?Thanks

Based on this question (references to "real world") I assume you are an actuary, working on asset and liability modeling. To the uninitiated, "Real World" is an actuarial concept meaning "use historical vol and historical returns" for pricing stuff. I have passing familiarity with 50% of these products. There are two issues here:1) Generating monte carlo paths of some sort2) Calibrating the inputs to the monte carlo path generatorsIn (1) you can do most ESG in between 5 and 20 lines of matlab, so I am pressed to find a situation where I would pay for ESG. But that's me. With (2) you are really talking about outsourcing all of your model parameterization to a 3rd party. Think about that carefully.

QuoteTo the uninitiated, "Real World" is an actuarial concept meaning "use historical vol and historical returns" for pricing stuff. Okay, to the initiated, "real world" is used in risk management models for asset risk (be it in a bank or in an insurance company). Here we model evolution of their asset portfolio over time, e.g. for the purpose of assessing the level of risk capital required to survive a 1 in 200 event over the next year.This requires modelling the real world evolution of interest rates, equity returns, credit spreads etc. It's not for pricing in any sense. However, once you have projected the movement of all these fundamental economic quantities to the end of the time period, you then need an assumption for market price of risk, in order to price assets at that point (e.g. if you evolve the short interest rate, you still need to compute the full term structure).Lots of complicated issues, e.g. - which models to use (most interest rate models etc are designed for risk-neutral usage, not many papers on real world ESG's)- constant or stochastic market price of risk- whether model is calibrated conditional on current market conditions (e.g. stochastic vol models) or to historical conditions (which will give inconsistent vols with market).- calibration methodology- backtestingThis is way beyond the resources of most actuarial units and probably most risk mgmt departments of investment banks (clearly they didn't do their job properly lately!!!).Banks seemed to be too busy "modelling to market" by backing out implied vols and never thought about what happens if they have to carry their liabilities over the long term. Actuaries would have actually looked at the fundamental values of these contracts, rather than simply worrying about arbitrage.Anyway, B&H seem fashionable and Goldmans have a big stake in them, if that's anything to go by.