Hi - can anyone explain the logic behind contingent immunization (Schweser example is in book 3, page 33-35).
Seems like you calculate what you want the future value of the portfolio to be, then discount back at the immunized rate. Then, you put in more than that, and that is your ‘dollar saftey margin.’ Here is where I am unclear - do you actively manage the whole thing, then if the value of the portfolio falls to the discounted value above, you immunize? In the example, rates jump to 12% immeadietely, would you have needed to immunize as the rates were rising?
Guess I am unclear on the timing and logic behind the last step - moving from active mgmt to immunized.