I was wondering if anybody could tell me what the dollar saftey margin represents. I understand it is the excess of assets available over assets required to achieve the minimum safety return. Is it just a measurement to see if the maneger is on track or is that amount invested differently (=active = riskier)? Thanks!
It tells you if you need to switch over to Immunization or you can continue to use active management. If dollar safety is Negative, Immunization should be kicked in.
Review of calcs, can somebody confirm? Rt=threshold rate Ri=immunization rate Target asset value (TAV) at time T = MV (1+Rt)^T Dollar safety margin = MV - TAV / (1+Ri)^T Cushion spread = Ri - Rt
Correct, threshold rate is also the minimum acceptable rate.
remember it has to be (1+Rt/2)^2T ect
^ yes correct watch out for time periods and coupn freq, i.e. it could be a 10 year bond but they want to immunize for 5 years.