A question about the model risk and spread risk associated with assumptions
In the Curriculum Book 4, SS10-11, Fixed income portfolio management, Reading 23 Liability-Driven and Index-Based Strategies, Question #5,
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I want to know that if the first assumption doesn’t hold, that is, the yield curve is not shifting in parallel, except that it can cause a duration mismatch between assets and liabilities, is it possible to raise spread risk? (I saw somewhere that nonparallel shifts would change the discount rates and present values of assets and liabilities, causing spread risk.) Thank you!
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