Classical Immunization

[Bopha99]

Just to clarify…the durations of the assets and liabilities must match but are we talking about the bond duration i.e. Changing of price relative to changes in interest or are we talking about the length to maturity?

 

[MrSmart]

Duration, not horizon.

 

[S2000magician]

Unfortunately, CFA Institute assumes that the duration of the liabilities is the horizon (i.e., Macaulay duration). They shouldn’t, but they do.

 

[Bopha99]

Ah makes sense now so regarding that point, which would cost more to implement?

 

[S2000magician]

I don’t follow the question.
When you ask which would cost more to implement, what are the two things you’re comparing?

 

[MrSmart]

I think he is comparing horizon with duration matching.

 

[Bopha99]

No, classical vs contingent immunization?