ThreeBearsBalancedWithText_2020
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required_adjustments
[discount_rates_problem] [outcomes] [required_adjustments]

On the chart, to the right, there are 6 pairs of radio buttons, namely experience, contract, inflation, marginMV, assets and statistic considered.

At the end of the contract term, our precise financial objective is either zero (for the annuity) or 10,000 real/nominal (for the endowment). To achieve that result, by how much must we adjust the initial pricing discount rate?

For a fully inflation-protected endowment fully invested in conventional bonds, the MtM approach would have required an adjustment of 0.51% pa, whereas the Off approach would have required an adjustment of 0.08% pa (see chart). I am not suggesting that mark-to-market is always worse than off-market but it mostly is; see a few extracted figures.