EIOPA · 271
271
- Regulation
- Risk-Free Interest Rate - General questions
- Submitted
- 2015-04-30
- Answered
- 2019-10-24
Question
You have published interest rate term structures that are rounded to the third decimal. The forward rates calculated on this basis show rather high fluctuations that are not meaningful. Presumably this could be avoided where rounding was done to 5 or 6 decimals. Is there a reason why you apply crude rounding? If not would it be possible to publish in the future figures that are less rounded?
Answer
The fluctuations in the forward rates calculated from the published spot rates stem from the rounding of those spot rates.It is possible to derive accurate values for the forward rates by calculating the forward rate intensity function according to the Smith-Wilson method. The parameters for this function (convergence parameter alpha and weights Qb) are part of the monthly publication (filename: EIOPA_RFR_201XXXXX_Qb_SW).
This Q&A is published by European Insurance and Occupational Pensions Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.
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