strikethree

janakisri / maratikus,

Can you (or anyone else) raise an example showing that the goal of duration rebalancing can be reached by rebalancing of the dollar duration ?

Duration rebalancing means keep the portfolio DURATION syncronized with the horizon date (of the liability). That is : to make the portfolio DURATION always same as the period left to the horizon date (of the liability).

In Example 6 on P30, the portfolio's duration is 3.636. But in Example 7 on P31, after one year, the portfolio's durations both BEFORE and AFTER the rebalancing are same (2.725). This means that rebalancing the dollar duration has nothing to do with the the rebalancing of the duration. The horizon date (the time period left) of the liability is not indicated in the examples.

Then, how to rebalance the portfolio's DURATION ?