Liability hedging without the tears
European pension funds and insurers are again scrambling to hedge their liabilities, but so far it has not blown out long-dated volatility, as it did in 2001. So what are these liability hedgers doing? Sarfraz Thind reports
Dealers are warily eyeing the European pension and insurance industry’s liability hedging needs. And with good reason – the last time these entities rushed to market, in 2001, to buy options as investments and hedges on the investments backing their guaranteed annuity obligations (GAOs), it caused a surge in long-dated volatility that caused a number of inadequately hedged dealers and other market
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