Liability hedging without the tears

Interest rates


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 participants some significant pain (Risk December 2001, page 6).

In the last few months of 2001, Dan

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