structural risk: arises from non parellel shifts and twists in the yield curve causing cash flow yields to change and as a result perfect immunization is not achieved
interest rate risk: arises from fluctuation in bond prices due to changes in interest rates.
If the above is true, can I state the following:
zero coupon bond has no structural risk and has higher interest rate risk than a coupon bearing bond? …thx!
“zero coupon bond has no [minimum] structural risk [when implementing CF matching] and has higher interest rate risk than a coupon bearing bond [for the same maturity]”
I like the above better. Structural risk isnt something that is stated for a bond. It’s stated as compared to an immunization strategy.
I also think you can implement cash flow matching with coupon bonds and have similar structural risks of no coupon bonds as well…