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FIN Ltd estimates their L=$120M liability portfolio to have a duration of D-11 and a convexity of C=245. FIN immunizes their liabilities using two
FIN Ltd estimates their L=$120M liability portfolio to have a duration of D-11 and a convexity of C=245. FIN immunizes their liabilities using two fixed-income instruments with durations D1-4 and, respectively, D2-15; and convexities C1=20 and, respectively, C2=280. (a) What is the composition of the immunizing portfolio? (b) What is the most precise estimate you can give of the change in value of FIN's overall portfolio due to a 1% drop in rates at all maturities?
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SOLUTION a The composition of the immunizing portfolio is not explicitly given in the information provided However we can infer that one of the fixedincome instruments has a duration of D115 and a con...
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Fixed Income Analysis
Authors: Barbara S. Petitt
5th Edition
1119850541, 978-1119850540
