Fixed Income I, Schweser: The text says that a very low safety net (in the context of contingent immunization) could mean the manager is devoting too many assets to the portfolio. Also, setting the safety net too high could mean the manager has dedicated insufficient assets. I am totally confused what this means.
The portolio must be the active mangament portfolio. If you have a total of $200M asset, and $100M in liability to manage. Let’s say you use $120M to manage your $100M, that is a $20M safty net. That only leaves you $80M to the active stragety (portfolio). However, if you use $190M to manage the $100M liability, that gives you a $90M safty net, however, you only hae $10M to the active stragety (portfolio) Helps?
makes sense
I don’t understand how does the response make sense… in case 1, 120M vs 100M, SN (Safety Net) 20MN this is low SN per CFAI quote aboveagreed but how is this too many/much assets? Similarly, in case 2, 190M vs 100M, SN (Safety Net) 90MN and per CFAI quote above is this insufficient assets? Agredd SN is high. Thnx
Relatively