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Liquidity Risk - Relevance to Actuaries [15]

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Bullet points include: Liquidity premium thus derived can at times be very substantial, e.g. c. 2% pa at end Sept 2008. Compounded over significant durations has large impact on: Pricing of annuities (bulk and individual). Buy-out terms available to DB pension schemes. Reserves required for such liabilities. Decomposition of average corporate bond spreads into different elements (average A rated credit spreads)

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