reading 20. seemed fairly easy going until I bumped into these rules.
“The present value of the assets equals the present value of the liabilities.”
but we are told a 30yr duration portfolio could be synthesized using shorter (10yr) bonds, i.e. borrowing. assets are assets, not assets minus liabilities.
“The (composite) duration of the portfolio must equal the (composite) duration of the liabilities”
not sure about this also. surely a steep curve means they dont match? depends what equation you are using to arrive at the “composite” number. the word “duration” is quite broad .
“The distribution of durations of individual portfolio assets must have a wider range than the distribution of the liabilities”
as mentioned, we know a 30yr duration portfolio can synthesized.. blah
surely we can just use a non-linear solver? not like those linear things they thought were so funky in the 80s?
“The present value of the assets equals the present value of the liabilities.”
but we are told a 30yr duration portfolio could be synthesized using shorter (10yr) bonds, i.e. borrowing. assets are assets, not assets minus liabilities.
“The (composite) duration of the portfolio must equal the (composite) duration of the liabilities”
not sure about this also. surely a steep curve means they dont match? depends what equation you are using to arrive at the “composite” number. the word “duration” is quite broad .
“The distribution of durations of individual portfolio assets must have a wider range than the distribution of the liabilities”
as mentioned, we know a 30yr duration portfolio can synthesized.. blah
surely we can just use a non-linear solver? not like those linear things they thought were so funky in the 80s?