N° 47 : Regulatory yield curves and climate-related scenarios

The impact of the selected climate-related scenarios, including both physical and transition risks, is assessed with respect to a baseline scenario (excluding those climate-related risks) and is obtained by means of the following modeling strategy. First, we estimate a Gaussian macro-finance affine term structure model (MTSM) on the liquid segment of the EA EIOPA risk-free yield curve, together with two EA macroeconomic variables (GDP growth and inflation rate). Second, for any relevant scenario, we calculate the conditional forecast of this (liquid segment of the) yield curve, conditionally to the scenario-based future path of the two macroeconomic variables. Third, any yield curve forecast (conditionally to the chosen scenario) is extrapolated, from the last liquid maturity to the longest maturity provided by the EIOPA, by means of the required Smith-Wilson function.