  We present a framework on how to hedge the interest rate sensitivity of
liabilities discounted by an extrapolated yield curve. The framework is based
on functional analysis in that we consider the extrapolated yield curve as a
functional of an observed yield curve and use its G\^ateaux variation to
understand the sensitivity to any possible yield curve shift. We apply the
framework to analyse the Smith-Wilson method of extrapolation that is proposed
by the European Insurance and Occupational Pensions Authority (EIOPA) in the
coming EU legislation Solvency II, and the method recently introduced, and
currently prescribed, by the Swedish Financial Supervisory Authority.
