Hedging Long-Dated Interest Rate Derivatives for Australian Pension Funds and Life Insurers
16 Pages Posted: 11 Nov 2015
Date Written: March 26, 2014
Abstract
Many pension funds and life insurers seek to hedge their exposure to low interest rates using long-dated interest rate derivatives. This paper extends an approach of Platen and Heath 2006 to price and hedge long-dated interest rate derivatives using a combination of Australian cash, bonds and equities and under a variety of market models. The results show the models under which the lowest cost hedge is achieved.
Keywords: growth optimal portfolio, benchmark approach, long-dated zero coupon bonds, minimal market model
Suggested Citation: Suggested Citation
Fergusson, Kevin and Platen, Eckhard, Hedging Long-Dated Interest Rate Derivatives for Australian Pension Funds and Life Insurers (March 26, 2014). Australian Journal of Actuarial Practice 2014, 1, 29-44, Available at SSRN: https://ssrn.com/abstract=2688880
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