Interest Rate Risk
What is interest rate risk here? Just the idea that interest rates change over time, and that shouldn't be included in a RT test? Only insurance risk should be accounted for, but how does using the risk-free rate do that?
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What is interest rate risk here? Just the idea that interest rates change over time, and that shouldn't be included in a RT test? Only insurance risk should be accounted for, but how does using the risk-free rate do that?
Comments
You need to read section 3.3.2 Interest Rate. Have a look and let me know if you have questions on it.