The diagnostic is based on four key areas of consideration:
1. Risk tolerance
2. Funding and accruals
3. Current commitment to liability-driven investment (LDI)
4. Expectations regarding future interest rate movements
An interest rate hedging diagnostic
How much interest rate exposure should be built into the asset portfolio to offset the interest rate exposure in the liabilities? See our four key considerations.
By Justin Owens
One of the biggest strategic decisions faced by defined benefit (DB) pension plans is that of choosing an interest rate hedge ratio. In this article, we describe a broad diagnostic that helps to identify some of the key pressure points. It’s a high-level tool that provides a general assessment rather than a definitive answer. The diagnostic sets the stage by highlighting what are likely to be the most important considerations given a particular plan’s situation.
The diagnostic is based on four key areas of consideration:
1. Risk tolerance
2. Funding and accruals
3. Current commitment to liability-driven investment (LDI)
4. Expectations regarding future interest rate movements
The diagnostic is based on four key areas of consideration:
1. Risk tolerance
2. Funding and accruals
3. Current commitment to liability-driven investment (LDI)
4. Expectations regarding future interest rate movements