So it says no interim cash inflows/outflows except for coupons and reinvestment income. If that’s the case, how would you rebalance duration? text book was just teaching how to rebalance dollar duation just prior to this section… then says no interim cash flow allowed?
Please help!! FI gurus
Here’s what I think after doing some more reading/googling… please let me know if I am way off and steer me in the right direction…
Wiki says immunization theory starts by assuming the yield curve is FLAT. The text teaches us rebalancing (hence cash movements) is needed because duration changes as yields change or passing of time. Therefore… if the assumption is a flat yield curve there is NO NEED to rebalance = simply make sure duration = maturity of liability and PV of both is fine.
We will start worrying about rebalancing after the assumptions are relaxed…i.e yields DO change and curve is not flat… how we looking fellas? it’s 1am…gettin up in 4 hrs for work so pls excuse where i am not making sense.