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Immunization of a Portfolio
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A risk management technique designed to ensure that a portfolio of debt instruments will cover a liability coming due at a future date or over a period in the future. The typical approach to immunization is to invest in a portfolio with a Macaulay duration equal to the duration of the liabilities and a present value equal to the present value of the liabilities. This technique implicitly assumes that any shifts in the yield curve will be parallel shifts. Also called Dedicating a Portfolio, Duration Matching, Cash Flow Matching.
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