Immunization - Rebalance

[FrankCFA]

Immunizing Single Liabilities, Multiple Liabilities, and General Cash Flows. Could we say one of advantage of cash flow match is it does not need rebalance? Thanks.

 

[Galli]

In the simplist sense yes it’s an advantage of being less likely to need rebalancing. You’re matching the known payment (liability) wiith a future cash flow from your assets.

 

[FrankCFA]

Thanks Galli.

 

[Que Sera]

Does this still apply if interest rates change?

 

[zulu007]

I guess only if the liability is known and certain.

 

[Audacious]

Que Sera wrote:
Does this still apply if interest rates change?

I believe there’s still the effect of convexity. I’m not sure though

 

[magicskyfairy]

“Immunizing Single Liabilities, Multiple Liabilities, and General Cash Flows. Could we say one of advantage of cash flow match is it does not need rebalance? Thanks.”
I think if the cash flows of both the assets and the liabilities are known with certainty, this is fair. however, if there’s a default, that could be a problem, and might require some tinkering.

 

[Galli]

Que Sera wrote:
Does this still apply if interest rates change?

Is the liability bond-like?