Fixed Income Question on Cashflow Matching easily, easier, maintain, difficult

Carson

A cash flow matched portfolio:

A: Usually more difficult to construct than an immunized portfolio, but it is easier to maintain after it has been constructed

B: Usually more expensive to maintain than an immunized portfolio after it has been constructed

C: Can be easily changed after it has been constructed

bboo

A

NO EXCUSES

zwjy

a b!tches.

Analti_Calte

Answer is "A". More difficult to maintain immunization compared to cf matching.



Edited 1 time(s). Last edit at Thursday, April 7, 2011 at 12:23PM by onelasttime.

bpdulog

B except for the addition of after constructed and they are focused on ...........once constructed a cashflow matching method is cheaper to maintain that immunization........ so I say A ..........

mar350

A: Usually more difficult to construct than an immunized portfolio, but it is easier to maintain after it has been constructed

skycfa

Since immunization is related to duration and duration changes, I don't think this is easy to maintain. Once you have matched actual cash flows, you shouldn't have to do anythng else.

Roflnadal

Once a portfolio has been immunized, no more action is needed from the portfolio manager. The only relevant cash flow at that point is the one at horizon date.

CF matching, on the other hand, is more costly and harder to maintain. Coupons have to be constantly reinvested and used (along with principal of other maturing bonds) to pay down liabilities as they come due. It's easier to understand but it's not easier to maintain.

zwjy

To quote Scheweser notes, "Since it is unlikely that the cash flows from a bond portfolio will exactly match the liabilities, reinvestment risk is inherent in cash flow matching. As such, a minimum-risk immunization approach to funding multiple liabilities is at least equal to cash flow matching, and probably better, since it would be less expensive to fund a given stream of liabilities"

I'm more certain that the answer is B.

justin88

That was my answer originally. B