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.

bond-portfolio-immunization-1bond-portfolio-immunization-2

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)

portfolio-duration

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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