So contingent immunization calcs and immunization...

CFA Level III
#1

When calculating the required terminal value we take the PV(Assets) and x (1 + (min required return/2)) ^ Tx2

PV(Liabilities) is then Required Terminal Value/ (1 + (immunization rate/2))^ Tx2

If there is a surplus you can continue a contingent immunization strategy…

but lets say that the immunization rate and the minimum required return are the same here - that means that a portfolio is immunized, correct? Because the present value of the assets equals the present value of the liabilities? (as long as the range in duration of the assets is greater than the liabilities that is)

#2

correct. Contingent only works if the immunized strategies rate exceeds the minimum acceptable return rate (say the crediting rate or actuarial rate).

#3

Hadn’t conected those dots on the crediting rate yet, thanks

#4

and the questions on this will then usually say, interest rates suddenly move up to x%, can contingent immunization continue?

And then you compare the PV of the bond and of the future minimum value of the liability at that new rate and see if A > L.