“Contingent immunization is an approach where the potfolio manager analyzes the risk/return tradeoff for immunized portfolios and will accept higher level of immunization risk provided there is additional return.”
This is classic CFAI test question structure - pick a concept, then define a similar but different concept.
There is no risk/return “trade-off” in contingent immunization. Contingent immunization is strictly a part of the 4th extention of classical immunization, the risk return trade-off is a part of the third extention. However, both the third extention and fourth extention deal with return maximization and that is where the confusion comes in since they are so close.
Here’s one that gets me alot:
Using a factor push stressing model an analyst will try to optimize mathematically the risk variable that will produce the maximum loss.