Immunizing a Bond Porfolio by Matching Duration and Convexity of Pension Assets and Liabilities

This post covers part of a Fixed Income March 2014 CIIA exam question that required the calculation of three weights (three unknown weightings) based on modified duration and convexity.


The formula for portfolio duration is needed for equation (2) and the modified durations from the table (highlighted in yellow) as well as the modified duration for the liabilities (given; below the table)


The formula for portfolio convexity is needed for equation (3) and the convexity values from table (highlighted in green) aswell as the convexity given for the liablities (given; below the table).portfolio-convexity

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