An alternative model for extrapolation

An alternative model for extrapolation

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Recently, both insurance and pension regulators in Europe have been moving away from market-consistent valuations of long-dated liabilities. Market-consistent valuation was intended to bring transparency to the balance sheet, but it also brought low interest rates and high balance-sheet volatility. Given the lack of liquidity of ultra long-dated interest rate swaps, European policy-makers have suggested that the illiquid part of the curve

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