So correct me if I’m wrong. The problem with immunization is that it needs to be adjusted with small changes in interest rates or as time elapses. You can combat both of these by using a zero coupon bond correct? Or do you still need to adjust? I assume its even worse when you use corporates or another bond that has coupons. Yes/No?
Yes zero coupon minimizes/eliminates risk associated with imminization.
The issue for large companies is that you only have a limited amount of zero coupon bonds out there. Also insurance companies/pension plans look at fixed income products on a relative value basis. As a result they are exposed to immunization risk.