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Duration Matching (Immunization) Calculator

Match portfolio duration to liability duration for immunization, minimizing interest rate risk.

Duration Matching (Immunization) Calculator

Match portfolio duration to liability duration for immunization, minimizing interest rate risk.

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Guide

Understanding duration matching and immunization strategies

Duration matching (immunization) aligns portfolio duration with liability duration to hedge interest rate risk.
Portfolio duration = Σ(Weight × Duration) for all bond positions. Match this to your liability duration.
When durations match, changes in interest rates affect portfolio and liability values similarly, minimizing net exposure.
Duration gap <0.5 years is typically considered well-matched. Larger gaps require rebalancing to maintain immunization.
Rebalance periodically as durations change with time (duration decreases as bonds approach maturity) and interest rates change.

Frequently Asked Questions

Duration matching, immunization, and interest rate risk management

What is duration matching?

Duration matching is an immunization strategy that aligns portfolio duration with liability duration to minimize interest rate risk, ensuring portfolio value changes offset liability value changes when rates change.

How is portfolio duration calculated?

Portfolio duration = Σ(Weight × Duration) for all bond positions. It's the weighted average of individual bond durations, where weights are portfolio allocations.

What is liability duration?

Liability duration is the weighted average time to receipt of liability cash flows, discounted by the appropriate interest rate. It measures sensitivity of liability value to interest rate changes.

Why match durations?

When portfolio and liability durations match, interest rate changes affect both similarly, minimizing net exposure. This immunizes the portfolio against interest rate risk.

What duration gap is acceptable?

A gap <0.5 years is typically considered well-matched. Larger gaps indicate imperfect immunization and may require rebalancing to restore matching.

How often should I rebalance for duration matching?

Rebalance when the duration gap exceeds tolerance (e.g., 0.5 years), when interest rates change significantly, or periodically (e.g., quarterly) as durations drift with time.

Does duration matching eliminate all risk?

No. Duration matching hedges interest rate risk but not credit risk, liquidity risk, or basis risk. It's most effective for parallel shifts in the yield curve.

What if durations don't match exactly?

Small gaps (<0.5 years) are often acceptable. For larger gaps, adjust portfolio by adding/removing positions or shifting to bonds with different durations to restore matching.

Can I use this for multiple liabilities?

Yes. Calculate weighted average liability duration for multiple liabilities, then match portfolio duration to this combined liability duration.

What about convexity?

Duration matching is a first-order approximation. For better immunization, consider convexity matching as well, especially for large interest rate changes or non-parallel yield curve shifts.

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Duration Matching (Immunization) Calculator

Match portfolio duration to liability duration for immunization, minimizing interest rate risk.

How to use Duration Matching (Immunization) Calculator

Step-by-step guide to using the Duration Matching (Immunization) Calculator:

Enter your values. Input the required values in the calculator form
Calculate. The calculator will automatically compute and display your results
Review results. Review the calculated results and any additional information provided

Frequently asked questions

How do I use the Duration Matching (Immunization) Calculator?

Simply enter your values in the input fields and the calculator will automatically compute the results. The Duration Matching (Immunization) Calculator is designed to be user-friendly and provide instant calculations.

Is the Duration Matching (Immunization) Calculator free to use?

Yes, the Duration Matching (Immunization) Calculator is completely free to use. No registration or payment is required.

Can I use this calculator on mobile devices?

Yes, the Duration Matching (Immunization) Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.

Are the results from Duration Matching (Immunization) Calculator accurate?

Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.