I (Buckner) will be presenting on the subject of LDI and the ‘bigger than it looks’ problem on Nov 3, 2022 04:30 PM London, by Zoom.
If you would like to attend, please contact me here for the flyer, and the Zoom link.
“The September 28th collapse in the gilts market led the Bank of England to announce a £65bn programme to stabilise long-term interest rates and save UK pension schemes from defaulting on their Liability Driven Investment (LDI) positions by the end of that day. Schemes had experienced liquidity problems on their Interest Rate Swap positions, losses on which had triggered margin calls requiring them to sell assets.
“The affair has highlighted the danger of hedging illiquid positions with liquid ones. I shall argue, based on a model of the underlying interest rate transformation involved in LDI, that there is more to the issue than has yet been appreciated.”