Liability-Driven Investment by Dan Tammas-Hastings

Author:Dan Tammas-Hastings [Tammas-Hastings, Daniel]
Language: eng
Format: epub
ISBN: 9781119441960
Publisher: Wiley
Published: 2021-03-29T00:00:00+00:00

Which gives,

In low interest rate environments, the approximation will give reasonable results, however as we demonstrate below it is less effective in highly inflationary regimes.

Take a scenario of 10 per cent interest rates and 6 per cent inflation.

Here the approximate formula gives:

But the precise figure is

NB Real Interest rates are likely to be higher in inflationary environments as investors will seek extra return to compensate for the extra risk, although this is not always the case.

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