Summary of Measuring Interest Rate Risk in the Very Long Term

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Judging interest rates and pricing financial instruments can challenge even the savviest professional, but determining how to adequately price risk that extends 50 years and beyond is a real conundrum. In some cases, the benchmark 30-year US Treasury bond may be insufficient. Economists Jens H.E. Christensen, Jose A. Lopez and Paul L. Mussche contend that insurers, traders and bankers can gauge interest rate risk beyond 30-year timelines through “extrapolation.” getAbstract suggests this complex yet illuminating report to insurance professionals and financial experts interested in the pricing dynamics of interest rates.

In this summary, you will learn

  • Why financial professionals need to set interest rates for assets and liabilities that can extend to 50 years and beyond, and
  • How “extrapolation” can help price those longer-term financial contracts.

About the Authors

Jens H. E. Christensen, Jose A. Lopez and Paul L. Mussche are researchers at the Federal Reserve of San Francisco.



Because interest rates are “the price you pay to be able to use money sometime in the future,” financial professionals need to incorporate long-term views when setting rates on credit cards, automobile loans, mortgages and a range of financial transactions.

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