Question

What is the purpose of applying stochastic interest rate approaches for hedging purposes?

a.

To eliminate variations in cash inflows and outflows

b.

To ensure that interest rates remain stable over time

c.

To accurately measure and manage interest rate risk

d.

To maximize the variability of cash flows with changes in interest rates

Posted under IC 92 Actuarial Aspects of Product Development

Answer: (c).To accurately measure and manage interest rate risk Explanation:Stochastic interest rate approaches are used to accurately measure and manage interest rate risk, particularly for products where cash flows are influenced by interest rate fluctuations. These approaches consider the randomness and uncertainty associated with interest rate movements.

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Q. What is the purpose of applying stochastic interest rate approaches for hedging purposes?
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