Portfolio Immunization

Agree or disagree with the following statement and explain your answer: “As long as a portfolio manager matches the duration and convexity of a portfolio to the liability, whether he uses a ‘barbell strategy’ or a ‘bullet strategy’ should make no difference.”

Disagree: Bullet strategy is preferable to barbell strategy owing to the likelihood of key rate duration mismatch, reinvestment risk and price risk in case of a barbell strategy as compared to a bullet strategy.

I agree with GetSetGo. Secret Sauce uses M^2 measure (“maturity variance which is the variance of the differences in the maturities of the bonds used in the immunization strategy and the maturity date of the liability”). Smaller M^2 is preferrable due to reinvestment and interest rate risk.


Immunization can be achieved most effectively when the cashflow occure at the same time. So, using a bullet structure can be better to match the timing of the liability.

Taken to an extreme, a zero coupon bond would have zero variance from the liability date and no risk as an immunization strategy.


Your Concur was more exciting than mine, ws. Do you CONCUR!!!

You bet you!!??%%$$##**

CONCUR! *runs away*

I concur too.