Regarding multiple liabilities dur-matching immunization:
I get that we should:
- eliminate the portfolio with lower convexity than that of the liability
- select the portfolio with the lowest convexity among the rest of the portfolios, all else equal (min structural risk)
this makes sense to me if we have no view on the expected interest rate change, convexity is good
However my question is, if we are expecting a curve steepening (i.e long end goes up more), a portfolio with higher convexity would be expected to lose more MV than the liability, why would we still want to have a higher convexity for the immunization portfolio?
Maybe my understanding of “immunization” is incorrect…