immunization

CFA Level III
#1

can immuinzation be implemented with bond derivatives like futures or forward?

#2

i believe so, yes.

#3

yeah I guess. just set the mv of the portfolio to liabilities, and also match the durations. all can be done by using futures.

#4

if so, why didn’t cfai even mention a word?

#5

maybe saving it for the exam

#6

rand0m Wrote: ------------------------------------------------------- > if so, why didn’t cfai even mention a word? well, you wont be able to do it just with bond deriv contract. you will need cash that will match the PV

#7

comp_sci_kid Wrote: ------------------------------------------------------- > well, you wont be able to do it just with bond > deriv contract. you will need cash that will match > the PV mv(portfolio of forward contracts) = pv(liab) d(port. of forwards) = d(liab) would it work?

#8

rand0m Wrote: ------------------------------------------------------- > comp_sci_kid Wrote: > -------------------------------------------------- > ----- > > well, you wont be able to do it just with bond > > deriv contract. you will need cash that will > match > > the PV > > mv(portfolio of forward contracts) = pv(liab) > d(port. of forwards) = d(liab) hows mv(portfolio of forward contracts) = pv(liab), can you explain? without cash backing forwards?

#9

of course, cash needs to be commited eventually. but, initially, you dont, just like immu. with general cash flow situation. cash comes later. but, my point is it may not work at all, otherwise, cfai should have mentioned (leveraged immunization …).