Immunizatoin vs Contingent Immunization

Which one is riskier? Which one is low cost?

Contingent is riskier b/c you are playing with the spread in risky assets to hopefully make some money, but if the mkt tanks really quickly, then you are in big trouble and the company will have to pony up to make good on its contract/liability. Lower cost - that depends…if the C.Immunization achieves a positive spread of the discount rate, then it is the lower cost, but if it does not then it can cost more in the end… I can see it both ways.

i think contingent . immunization is most costly to actually implement and as far as transaction costs and monitoring are concerned…

contingent is def less cost if spread is positive IMHO

right, contigent is riskier and less cost.


let me draw a parallelism (which is LIII all about). Compare it to Fix-Time horizon planning vs Asset allocation in SS7. See the similarity??

COntingent immunization by definition is riskier. It falls under the category of “relaxing the risk measure” (o rsomething like that) for various forms of immunization strategies. COntingent immunization I would say is less costly becasue you’re not constantly rebalacing your portfolio to match asset-liability durations.

Real costs = contingent is costlier Total cost (real + opportunity ) = immunization is riskier, provided the active manager does not screw the pooch on the contingent immunization return (i.e., return > required return reduces cost). i doubt they will ask any trick questions like this. the nice thing about the written section is that if they try to pull any weak sauce move like this you can explain why both could be right.