标题: Immunization (Cushion spreads and such) [打印本页] 作者: pimpineasy 时间: 2011-7-13 13:32 标题: Immunization (Cushion spreads and such)
I know there has been a lot of talk on this on the boards, but just wanted a quick answer here:
For each problem when they talk about "the manager has an acceptable return of 5%". Where does this number play in any of the calculations at all? I have done a couple of problems and never once had to use there acceptable returns.....
Lemme know and thx in advance!作者: mp3bu 时间: 2011-7-13 13:32
That would be the value that is used to find the terminal value of the liability of the portfolio.
i.e. 100MM to invest now for 3 years. 100(1.025)^6 would give the terminal value. Then obviously that value discounted by the current immunization rate.
Edited 1 time(s). Last edit at Tuesday, May 31, 2011 at 12:02PM by Paraguay.作者: cityboy 时间: 2011-7-13 13:32
Oh ok.
So hypothetically:
100M for 5 years at a acceptable rate of 5% (semiannual) = 128M terminal value
Currently own a bond at 100M, 10 year semi annual, with 6% coupon. = 100M (since immunization rate = coupon it is trading at par)
If rates increased by 2% to 8% immediately
Current PV Bond:
n = 20
IR = 4%
PMT = 3M
FV = 100M
PV = calculated = -86409673.66
Revised Immunization trigger point (whats the name of this number again?)
128M / (1.04)^10 = 86.47M
Since 86.40 < 86.47 , immunization is triggered
Anything wrong here?作者: ohai 时间: 2011-7-13 13:32
No, it always seems like rates have to move a lot for immunization to be triggered.作者: liangfeng 时间: 2011-7-13 13:32
Okay but the math and the logic is correct? Like if the rates moved up by 7% then odds are I would have to use immunization.作者: IAmNeil 时间: 2011-7-13 13:32
Yeah everything is correct. I just am always shocked when doing the math how much rates need to move.
