2023 ImpACT Conference - Session 8F: Wild Interest Rate Behavior: Can We Really Model This Anymore? 10.25.23 Recording

The last 20 years of global interest rate experience has low interest rates for long periods of time ('low for long'), negative interest rates, strange yield curve shapes, and now the most rapid increase in interest rates in our history. What is it we should be focused on as risk managers? Low for long, high rates due to prolonged inflation, or some blend of the two? The session will discuss our interest rate experience and the factors that appear to be dominant for the next decade. The session will address how one establishes a set of stylized facts to guide the development of a suitable interest rate model and how calibration targets can be determined. Discussion will then move to the suitability of existing interest rate models for capturing the real-world risks that actuaries and other finance professionals are concerned with. Are there interest rate models that are fit for purpose given the past 20 years of experience? A selection of candidate models will be discussed and illustrated. Attendees will learn about the challenges that are faced in modeling the past 20 years of interest rate behavior and what models might be useful for that purpose. Attendees will also learn the most important empirical features of our recent interest rate experience and how to establish a modeling perspective to work from in this environment. TRACK: ERM/ Capital Risk/ Climate Change;Investments/ ALM