I'm reading about hedging for pension funds, I understand why we hedge the liabilities but what I don't understand is the concept of nonlinear liabilities ? what do we mean by that ? can someone explain this concept ?
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1$\begingroup$ Where did you see this? $\endgroup$ – Bob Jansen♦ Oct 7 '20 at 11:50
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$\begingroup$ @BobJansen in my internship :) $\endgroup$ – hurop Oct 7 '20 at 11:56
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$\begingroup$ Sure, but what was the context. $\endgroup$ – Bob Jansen♦ Oct 7 '20 at 12:00
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1$\begingroup$ for pension funds plans we often talk about hedging linear and nonlinear liabilities, I'm having troubles understanding what we mean by the two ? @BobJansen $\endgroup$ – hurop Oct 7 '20 at 12:02
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$\begingroup$ To me linear hedging means hedging based on the Duration of the liabilities, non-linear means taking into account Convexity (quadratic) and perhaps higher order terms. $\endgroup$ – noob2 Oct 7 '20 at 12:09
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