We would like to take the opportunity to specify certain aspects of the risk-free interest rate term structure for QIS 5. This technical paper is set out in four sections to cover the aspects of the risk-free interest rate term structure as asked from the European Insurance CFO Forum and CRO Forum. For the 18 currencies highlighted, the four sections cover:
- Selection of the basic risk-free interest rate term structure
- Derivation of the liquidity premium
- Assessing the last liquid point to enter the yield curve extrapolation
- Method for adjusting inter-bank swaps for credit risk
In addition, there are supporting appendices which contain further technical details and a spreadsheet containing the basic risk-free interest rate curves adjusted for credit risk.