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)
“Our achievements speak for themselves. What we have to keep track of are our failures, discouragements, and doubts. We tend to forget the past difficulties, the many false starts, and the painful groping. We see our past achievements as the end result of a clean forward thrust, and our present difficulties as signs of decline and decay.”
—Eric Hoffer (1902–1983)
“If the underdog were always right, one might quite easily try to defend him. The trouble is that very often he is but obscurely right, sometimes only partially right, and often quite wrong; but perhaps he is never so altogether wrong and pig-headed and utterly reprehensible as he is represented to be by those who add the possession of prejudices to the other almost insuperable difficulties of understanding him.”
—Jane Addams (1860–1935)