The curriculum states that to immunize a single liability, the duration of assets and liabilities must match.
However, for the multiple liabilities immunization, they say that the BPV of assets and liabilities must match. Also, the PV of Assets> PV of Liabilities.
Why can’t we just match the durations in the multiple liabilities case. What’s wrong in that?
Thanks.
Don’t quote me on this but this is how I understand it:
to immunize a single liability, the macaulay duration has to match.
for multiple liabilities you match the BPVs or the dollar duration (which are essentially the same thing in this context)
So you’re duration matching in both cases. Macaulay in one and dollar duration in the other
Matching dollar duration and Macaulay duration isn’t same. In the example in CFA curriculum text for multiple liabilities, the Macaulay durations dont match while the dollar duration matches.
My question is ehy don’t we do matching of dollar duration in both single and multiple liabilities.