Setting Long Term Interest Rate Assumptions

Matthew Lightwood

19 June 2019

Setting long term interest rate assumptions is very challenging

• What do we even mean by long term? (should 30 years be different from 50 or 100 years?)

• Many forecasting methodologies at our disposal (different results)

• To what extent can we use history as a guide?

• Not enough data to adequately backtest long term targets (can we extrapolate the efficacy of shorter term back tests?)

• So much uncertainty (economic, social, geo-political etc.)

Once targets are set can they be incorporated into a parsimonious stochastic modelling framework?