This topic has alluded me since i started studying for level 3 back in October. Honestly, I wanted to punt this topic area, but my biggest fear is seeing it in the AM session so I figure I should invest some time getting this concept nailed down.

Does anyone any material or can someone explain the proccess for contingent immunization (i.e. getting to the saftey reserve) to me in laymans terms? There doesn’t seem to be to many practice problems in the cfai material on this topic area :(.

Actually thinking through this more contingent immuinization its really just saying if I have a portfolio of X what will the value of my liability be in 5 years in relationship to the value of my portfolio today? So i would use the discount rate on the liabilitiy to get the future value of that liability. Then I would just discount that liability back at the immunization rate (the rate I can earn on the portfolio which should be above the liablity discount rate). The difference in this value compared to my portfolio today is my cushion?

It’s just a other twist on a time value of money problem. Well, obv there’s more to it than that but I am assuming you’re specifically asking about the calculation of the safety cushion.