Question about Reading 30. fixed income Q23 pg. 155 CFAI.
Can someone please explain the asset/liability duration mismatch concept? and specifically to this question which asks what concerns you the most?, the asset Duration is much lower than the liability Duration and your portfolio has larger weight in longer term bonds. much appreciated.作者: mamuka12 时间: 2013-4-1 14:20
assets have a duration of 5.6 which is much less than the liabilities duration of 10.2. So there is a asset liability duration mismatch.
when the yield curve flattens - short term yields rise more, long terms yields rise less. [Hope I am getting this right, now].
when short term yields rise - the liabilities become MORE negative - their duration becomes more than 10.2, while assets remain relatively stable at 5.6 duration. This causes the Asset liability duration mismatch increases more. So this would be greater cause for concern.
