Abstract
The selection of investments held in dedicated pension or insurance asset portfolios should be liability-driven. Techniques have been developed to hedge or immunize single liabilities from the effects of a variety of yield curve changes. In this paper, we extend these results to a more relevant practical problem, to immunize multiple liabilities occurring at different times in the future. This immunization approach can accommodate a variety of non-parallel yield curve behaviours. In a practical application, we demonstrate that our approach is effective in selecting index tracking portfolios in the UK Gilt (government bond) market.
Original language | English |
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Pages (from-to) | 413-435 |
Number of pages | 23 |
Journal | European Journal of Finance |
Volume | 16 |
Issue number | 5 |
DOIs | |
Publication status | Published - 1 Jan 2010 |
Keywords
- immunization
- multiple liabilities
- liability-driven investment
- duration
- index tracking