During the past several years, there has been substantial growth in the dollar amount of portfolios managed using immunization and dedication techniques. Assume a client wants to know the basic differences between (1) classical immunization, (2) contingent immunization, (3) cash-matched dedication, and (4) duration-matched dedication.
a. Briefly describe each of these four techniques.
b. Briefly discuss the ongoing investment action you would have to carry out if managing an immunized portfolio.
c. Briefly discuss three of the major considerations involved with creating a cash-matched dedicated portfolio.
d. Describe two parameters that should be specified when using contingent immunization.
e. Select one of the four alternative techniques that you believe requires the least degree of active management and justify your selection.