Liability mimicking and contingent immunization

CFA Level III Fixed Income
#1

Investing in liability mimicking assets portfolio would not provide return greater than liability needs. So the more efficient way is to hedge the liability using derivatives. So that the market exposures of liability is mimicked by derivatives. Use derivative to hedge requires less capital than cash investment. So free up capital for higher return assets. And the remaining capital is using asset-only approach for higher return generation.

The contingent immunization is managing funds against liabilities. If there is cushion spread, the remaining capital can be invested using active investment.

Question: is contingent immunization similar to “using derivative to hedge liability and remaining capital invested by asset-only approach”?

#2

as far as I understand it, contingent immunization requires some investment in a “true” portfolio - so hedging using derivatives would not be using contingent immunization.

#3

contingent immunization and “using derivatives to hedge the liabilities” are similar in the sense that

  1. both managing funds against the liabilities

  2. and use the remaining capital to gain higher return, using asset only approach

  3. the difference is contingent immunization does not use derivatives !