So I read the actual book and schweser, but I’m still confused.
There is this section that says
“If portfolio duration is less than liability duration, the portfolio is exposed to reinvestment risk”
Ok I get that part because you still have to reinvest.
After that, it says “if interest rates are decreasing, the losses from reinvestment income would be greater than the gain in the value of the bonds.”
So what happens if interest rates are rising?
Is the original portfolio now subject to price risk instead of reinvestment risk? If this is the case, is it safe to make the assumption that it doesn’t matter if portfolio duration is greater than or less than the liability duration to conclude if the portfolio is subject to reinvestment or price risk? And thus price/reinvestment risk depend on the movement of interest rates instead?