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:
“So far as my experience goes, travelers generally exaggerate the difficulties of the way. Like most evil, the difficulty is imaginary; for what’s the hurry?”
—Henry David Thoreau (1817–1862)
“Only a great actor finds the difficulties of the actor’s art infinite.”
—Ellen Terry (1847–1928)
“It appeared that he had once represented his tribe at Augusta, and also once at Washington, where he had met some Western chiefs. He had been consulted at Augusta, and gave advice, which he said was followed, respecting the eastern boundary of Maine, as determined by highlands and streams, at the time of the difficulties on that side. He was employed with the surveyors on the line. Also he called on Daniel Webster in Boston, at the time of his Bunker Hill oration.”
—Henry David Thoreau (1817–1862)