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The Relationship between Long-dated Interest Rates and Inflation: An Application to Zurich Insurance’s UK Pension Fund

Type: 
Master's Thesis
Corporate Partner: 
Zurich Insurance Group Ltd.
Date Published: 
March 30, 2017
This report presents multiple features of the relationship between long-dated interest rates and inflation in the UK, and extends a guidance model provided by Zurich Insurance to optimize the risk-return profile of a pension fund. To do so, we estimate the Fisher effect in the UK and find strong evidence in favor of a statistically significant relationship between interest rates and inflation. We then use some of the results as input to the model developed and provide a recommendation that aims to improve Zurich’s pension fund risk-return trade-off.