Hedging implications for
liability-driven investors

Managing surplus risk enables pension plans and endowments to align their asset allocations with their future obligations.

Market Insight:Analyzing Hedges for Liability-Driven Investors seeks to better understand the drivers of surplus risk and to analyse the potentially subtle impact of specific hedges.

In Goldberg and Kim’s case study, a term-structure hedge using an interest-rate swap substantially lowers surplus risk as expected. However, a credit hedge using a default swap elevates surplus risk.

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