Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/268747 
Year of Publication: 
2022
Series/Report no.: 
SAFE Working Paper No. 238
Version Description: 
Sept 2022
Publisher: 
Leibniz Institute for Financial Research SAFE, Frankfurt a. M.
Abstract: 
We propose an easy to implement yield curve extrapolation method to determine long-term interest rates suitable for regulatory valuation. We empirically evaluate this approach for the German nominal bond market, by estimating the model on bonds with maturities up to 20 years and assessing the out-of-sample performance for bonds with maturities beyond 20 years. Even though observed long-term yields are somewhat lower than the predicted yields, the method performs quite well empirically given its simplicity. We perform a case study on pension fund liability valuation and show that our proposed method would have a substantial impact on liability values.
Subjects: 
Sovereign Bonds
Term Structure of Interest Rates
Segmentation
Liquidity
Flight-to-safety
Credit Risk
JEL: 
G01
G12
G15
G18
Document Type: 
Working Paper

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