Beruflich Dokumente
Kultur Dokumente
ALM
IMMUNIZATION
Immunization of a portfolio:
ALM
1. PORTFOLIO IMMUNIZATION
Example
Example (solution)
Market rate 9%
2 years
Acquired interest
Bond price
TOTAL
Effective Return
1 035
5 271,20
6 306,20
8.76%
1 045
5 087.96
6 132.96
7.26%
4 years
Acquired interest
Bond price
TOTAL
Effective Return
2 219.97
5 000
7 219.97
7.88%
2 286.56
5 000
7 286.56
8.125%
3,5 years
Acquired interest
Bond price
TOTAL
Effective Return
1 662,76
5317.05
6 979.81
8%
1 711.22
5 268.04
6 979.26
8%
7
Comments
1.2. Immunization
IMMUNIZATION THEOREM: To
immunize a portfolio duration must be
maintained equal to the remaining
maturity of the portfolio (Fisher et Weil,
1971).
Example
10
Example (solution)
80+80*
1.08
Year
1
CF
80
Reinvestt
Rate
0,08
2
3
80
80
0,08
0,08
166,40
259,71
80
80
0,08
0,08
166,40
259,71
4
5
80
80
0,08
0,06
360,49
462,12
80
80
0,08
0,06
360,49
462,12
6
7
8
80
80
1080
0,06
0,06
0,06
0,06
0,06
0,06
569,85
684,04
1841,75
80 1080
80
1.06 1.06 2
End
Value
80,00
CF
80
569,85
80
684,04
80
1805,08 1117
Reinvestt
Rate End Value
0,08
80,00
80
0,06
1080
0,06
11
Immunization is a complex
strategy
The manager:
Example
Example (follow)
Example (solution)
Example (solution)
Example (solution)
2. ALM
Amount,
Date,
Risk (interest rate but also liquidity,
exchange rate risk)
19
Objective of ALM
20
21
Example
Liabilities
1 000 000
1 000 000
1 000 000
1 000 000
1 000 000
23
Example
Bond available
All bonds have a nominal of
maturity
coupon
B1
5
3%
B2
4
5%
B3
3
4%
B4
2
6%
B5
1
3.50%
100
Price
99.32
106.84
102.65
109.25
100.22
24
Work to do
25
Liabilities
O1
L1
O2
L2
O3
L3
O4
L4
O5
L5
1 000 000
29 127
970 873
46 230
924 643
35 564
889 079
50 328
838 751
838 764
-13
1 000 000
29 127
970 873
46 230
924 643
35 564
889 079
889 128
-49
-49
1 000 000
29 127
970 873
46 230
924 643
924 664
-21
-21
-21
1 000 000
29 127
970 873
970 830
43
43
43
43
1 000 000
1 000
027
-27
-27
-27
-27
-27
Nber of
Bonds
maturity
coupon
Price
B1
3%
99.32
103
9709
B2
5%
106.84
105
9246
B3
4%
102.65
104
8891
B4
6%
109.25
106
8388
B5
3.50%
100.22
103.5
8104
Portfolio Value
4 593 373.55
FT
26
Cost/benefit of CFM
Benefit:
Drawback:
Price of
bond j
Min N j P j
j
Cash flow in t
of liability
constraint s
N j C t , j L(t )
j
N j 0
DA A DE E DL L
DE E DA A DL L 0
DA A DL L
29
30
7
0.01100 6.67
dA
1.05
15
0.01 80 11.43
dL
1.05
Loss in equity val ue : 4.76
Immunizati on :
L
DA DL 12 years
A
12
0.01100 11.43
dA
1.05
31