Difficulties
Immunization, if possible and complete, can protect against term mismatch but not against other kinds of financial risk such as default by the borrower (i.e., the issuer of a bond).
Users of this technique include banks, insurance companies, pension funds and bond brokers; individual investors infrequently have the resources to properly immunize their portfolios.
The disadvantage associated with duration matching is that it assumes the durations of assets and liabilities remain unchanged, which is rarely the case.
Read more about this topic: Immunization (finance)
Famous quotes containing the word difficulties:
“I often think that all the difficulties we encounter only give us the more strength if we keep hold of our work, and we must not now give up while in the prime of life. It is best to keep trying, and by and by the opportunity will come. If we have given up, then we shall not be ready for it when it does come.”
—Ellen Henrietta Swallow Richards (1842–1911)
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“Have you noticed when reading War and Peace the difficulties Tolstoy experienced in forcing morally wounded Bolkonsky to come into geographical and chronological contact with Natasha? It is very painful to watch the way the poor fellow is dragged and pushed and shoved in order to achieve this happy reunion.”
—Vladimir Nabokov (1899–1977)