Centro de Documentacion de Fundación MAPFRE - Extrapolating long-run yield curves : an innovative and consistent approach

MAP20230021958

Extrapolating long-run yield curves : an innovative and consistent approach / Thiago Pedra Signorelli, Carlos Heitor Campani, César da Rocha Neves

Sumario: This article proposes a method to build term structures that are consistent with market data and that provide interest rates for which the volatility, on average, decreases as maturities increase. The Svensson model is adopted, and its parameters are estimated by the combination of a genetic algorithm and a quasi-Newton nonlinear optimization method. We innovate with a new objective function that focuses on both parts of the estimated curves (interpolated and extrapolated). For this purpose, a stability component is added. The new objective function aims to solve the problem of estimating long-term rates not observable in the market, for which the estimates are usually artificially stable or excessively volatile. The results show that the estimation method is able to bring the volatility of extrapolated rates to levels consistent with those observed for the longest liquid rate. Estimation errors are small enough and there is no statistical evidence that they are biased. The method is useful for the insurance market, since it provides interest rates that do not lead to artificially stable or excessively volatile technical provisions

En: North American actuarial journal. - Schaumburg : Society of Actuaries, 1997- = ISSN 1092-0277. - 06/09/2023 Tomo 27 Número 3 - 2023 , 22 p.

1. Modelos actuariales . 2. Algoritmos . 3. Tipos de interés . 4. Análisis de mercados . 5. Mercado de seguros . 6. Estimación . I. Heitor Campani, Carlos . II. da Rocha Neves, César . III. Título.