Extrapolating Long-Maturity Bond Yields for Financial Risk Measurement

• 成果类型: Article
• 署名作者: Christensen, Jens H. E.; Lopez, Jose A.; Mussche, Paul L.
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - San Francisco
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2021.4215
• 发表日期: 2022
• 页码: 8286-8300
• 关键词: Term structure modeling; capital regulation of insurance companies

摘要

Insurance companies and pension funds have liabilities far into the future and typically well beyond the longest maturity bonds trading in fixed-income markets. Such long-lived liabilities still need to be discounted, and yield curve extrapolations based on the information in observed yields can be used. We use dynamic Nelson-Siegel (DNS) yield curve models to extrapolate risk-free yield curves for Switzerland and several countries. We find slight biases in extrapolated long bond yields of just a few basis points. In addition, the DNS model allows the generation of useful financial risk metrics, such as ranges of possible yield outcomes over projection horizons commonly used for stress-testing purposes. Therefore, we recommend using DNS models as a simple tool for generating extrapolated yields for long-term interest rate risk management.