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Carson

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tT
发表于 2011-7-11 19:35 | 只看该作者

liability-mimicking portfolio

understand, totally, please, those
EOC Volume 2 Page 464 #2 and #3.

I totally don't understand what the hell those are.

An explanation from A-to-Z please.....



thx.
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skycfa

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2#
发表于 2011-7-11 19:35 | 只看该作者
The components of a pension fund's liabilities can be categorized as inflation-adjusted or not inflation adjusted.

Real return bonds will best mimic the components of the liability that are inflation-adjusted.

Nominal bonds are best used to mimic the components of the liability that are not inflation adjusted.

It should explain which components are inflation-adjusted and not inflation-adjusted in the text...

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Zestt

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3#
发表于 2011-7-11 19:35 | 只看该作者
I guess it is terminology.
nominal has inflation built in, real is no inflation.

r nominal = r real + inflation.

Or (1+r nominal) = (1 + r real) * (1 + inflation)

CP

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ll11

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4#
发表于 2011-7-11 19:35 | 只看该作者
Nominal bonds are not adjusted for inflation. Real bonds are adjusted to provide a given real return as inflation changes. Question 2 explains that real bonds are inflation-indexed.

Can't tell if this conflicts with your explanation, CP.

Jin: For question 2, the case explains that current retiree benefits will continue have the COLA feature.

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infinitybenzo

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5#
发表于 2011-7-11 19:35 | 只看该作者
But why is the payment to retirees sensitive to CPI? Isn't the payment supposed to be fixed?

alaaq80 Wrote:
-------------------------------------------------------
> Hi , in #2, bonds that are sensitive to CPI are
> mimicked by real growth bond (unexpected
> inflation) as well as future pmts.
> in #3, bonds and future pmts not sensitive to CPI
> or equity are considered as future payments to be
> mimicked by nominal bonds. Note the similarities
> between those liabilities and nominal bonds as
> both are considering expected inflation only.

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