IDEAS home Printed from https://ideas.repec.org/a/cup/jfinqa/v18y1983i01p113-123_01.html
   My bibliography  Save this article

Immunization Strategies for Funding Multiple Liabilities

Author

Listed:
  • Bierwag, G. O.
  • Kaufman, George G.
  • Toevs, Alden

Abstract

A number of recent papers have shown that it is possible for an investor to immunize a portfolio of default and option-free coupon bonds so that the return realized over a given planning period will never be less than that promised at the time the bonds were purchased. In this way, a future fixed dollar liability may be discharged with certainty by acquiring an asset portfolio with a market value equal to the present value of the liability and setting its appropriate duration equal to the time remaining to the date of discharge. However, most investors have more than one liability to discharge. In his seminal article in 1952, F. M. Redington showed that a stream of liabilities may be immunized if an asset portfolio having the same present value as the liabilities is selected so that:1. its duration is equal to the duration of the liabilities; and2. “the spread of the value of asset-proceeds about the mean term (duration) should be greater than the spread of the value of the liability” ([16], p. 191).

Suggested Citation

  • Bierwag, G. O. & Kaufman, George G. & Toevs, Alden, 1983. "Immunization Strategies for Funding Multiple Liabilities," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(1), pages 113-123, March.
    • Handle: RePEc:cup:jfinqa:v:18:y:1983:i:01:p:113-123_01
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S0022109000010796/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cláudia Simões & Luís Oliveira & Jorge M. Bravo, 2021. "Immunization Strategies for Funding Multiple Inflation-Linked Retirement Income Benefits," Risks, MDPI, vol. 9(4), pages 1-28, March.
    2. Victor Lapshin, 2021. "Immunizing a Marked-to-Model Obligation with Marked-to-Market Financial Instruments," HSE Working papers WP BRP 84/FE/2021, National Research University Higher School of Economics.
    3. Patricia Knain Little, 1986. "Financial Futures And Immunization," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 9(1), pages 1-12, March.
    4. Nawalkha, Sanjay K., 1996. "A contingent claims analysis of the interest rate risk characteristics of corporate liabilities," Journal of Banking & Finance, Elsevier, vol. 20(2), pages 227-245, March.
    5. Sotiris K. Staikouras, 2006. "Financial Intermediaries and Interest Rate Risk: II," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 15(5), pages 225-272, December.
    6. Duan, J. & Sealey, C. W. & Yan, Y., 1999. "Managing banks' duration gaps when interest rates are stochastic and equity has limited liability," International Review of Economics & Finance, Elsevier, vol. 8(3), pages 253-265, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:18:y:1983:i:01:p:113-123_01. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/jfq .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.