Essential Features of A Good Economic Scenario Generator (ESG)

This paper begins by defining an economic scenario generator and then distinguishes between real-world and riskneutral applications. The paper then discusses the key features that we believe make the difference between an adequate ESG and one that is truly powerful in its ability to uncover possible risk scenarios; we use illustrative examples where applicable. The paper briefly introduces some asset class-specific ESG attributes to demonstrate the depth and rigor that capturing risk requires.