What is contingent immunization?
Considering this, what is duration and immunization?
Immunization, also known as multi-period immunization, is a risk-mitigation strategy that matches the duration of assets and liabilities, minimizing the impact of interest rates on net worth over time.
Additionally, what is the difference between bond immunization and cash flow matching? Immunization aims to balance the opposing effects interest rates have on price return and reinvestment return of a coupon bond. Cash flow matching relies on the availability of securities with specific principals, coupons, and maturities to work efficiently.
In this way, what is portfolio immunization?
Bond immunization is an investment strategy used to minimize the interest rate risk of bond investments by adjusting the portfolio duration to match the investor's investment time horizon. In other words, the bond is "immune" to fluctuating interest rates.
How does duration matching work?
Duration-matching is a strategy used to manage interest rate risk that involves matching the duration of the loan with the duration of the asset. Duration is the weighted-average maturity of the cash flows of the debt or asset.