Bond Immunization

Today's Date
Days in Year

10/11/2012
365

Bond Quotes
Maturity Date

2/15/2013
2/15/2013
8/15/2013
8/15/2013
2/15/2014
2/15/2014
8/15/2014
8/15/2014
2/15/2015
2/15/2015
8/15/2015
8/15/2015
2/15/2016
2/15/2016
8/15/2016
8/15/2016
2/15/2017
2/15/2017

Coupon Rate

(%)
4.625%
0.875%
4.375%
1.750%
3.875%
1.375%
4.250%
0.750%
4.000%
1.875%
4.250%
0.500%
4.000%
2.375%
4.250%
1.250%
4.500%
2.125%

Ask Price

x/32
101
100
103
101
105
101
107
100
108
103
110
100
111
106
113
102
115
105

22
4
20
8
18
18
16
17
18
12
21
1
15
9
23
19
13
9

Decimal
0.6875
0.125
0.625
0.25
0.5625
0.5625
0.5
0.53125
0.5625
0.375
0.65625
0.03125
0.46875
0.28125
0.71875
0.59375
0.40625
0.28125

Price with
Accrued
Interest

mmunization
Inputs

Minimize

Decision Variables

Outputs

Constraints

Intermediate Results

Term Structure Coefficients

Sum of Squared
Error

a0
a1
a2
a3
a4
Zero Coupon Bonds with Face Value $100

Maturity
Price of Zero
Date
2/15/2013
8/15/2013
2/15/2014
8/15/2014
2/15/2015
8/15/2015
2/15/2016
8/15/2016
2/15/2017

Time to
Maturity

Spot Rate

Poly Derived
Spot Rates

Cash Matching

Cash Matching
Maturity
2/15/2013
2/15/2013
8/15/2013
8/15/2013
2/15/2014
2/15/2014
8/15/2014
8/15/2014
2/15/2015
2/15/2015
8/15/2015
8/15/2015
2/15/2016
2/15/2016
8/15/2016
8/15/2016
2/15/2017
2/15/2017

Coupon
0.04625
0.00875
0.04375
0.01750
0.03875
0.01375
0.04250
0.00750
0.04000
0.01875
0.04250
0.00500
0.04000
0.02375
0.04250
0.01250
0.04500
0.02125

Obligation
Date
2/15/2013
10000
8/15/2013
5000
2/15/2014
40000
8/15/2014
7000
2/15/2015
80000
8/15/2015
12000
2/15/2016
50000
8/15/2016
6000
2/15/2017
15000

Dirty Price
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Total Cost

Cash matching w/
reinvestment at zero
rate

Cash matching with

reinvestment (poly spot
rates)

Portfolio

Portfolio

<=====

0
CF from Portfolio

<
<
<
<
<
<
<
<
<

0 <=====
CF from Portfolio

<=====

Inputs
Minimize
Outputs
Constraints
Decision Variables
Intermediate Results

Decision Variables

Objective Function (Minimize)

Cash Flow Constraints

Duration Front End

Duration Optimization
Inputs
Minimize
Outputs
Constraints
Decision Variables
Intermediate Results
Date
2/15/2013
8/15/2013
2/15/2014
8/15/2014
2/15/2015
8/15/2015
2/15/2016
8/15/2016
2/15/2017

Constraints

Obligation
10000
5000
40000
7000
80000
12000
50000
6000
15000

======>

Maturity
Coupon
Dirty Price
2/15/2013
0.04625 $
2/15/2013
0.00875 $
8/15/2013
0.04375 $
8/15/2013
0.0175 $
2/15/2014
0.03875 $
2/15/2014
0.01375 $
8/15/2014
0.0425 $
8/15/2014
0.0075 $
2/15/2015
0.04 $
2/15/2015
0.01875 $
8/15/2015
0.0425 $
8/15/2015
0.005 $
2/15/2016
0.04 $
2/15/2016
0.02375 $
8/15/2016
0.0425 $
8/15/2016
0.0125 $
2/15/2017
0.045 $
2/15/2017
0.02125 $
Objective
Constraint
PV
dPV/da0
dPV/da1
dPV/da2
dPV/da3
dPV/da4

Portfolio

=
=
=
=
=
=
=

Portfolio
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Obligation

Results Table
Maturity
Coupon
Dirty Price
2/15/2013
0.04625 $
2/15/2013
0.00875 $
8/15/2013
0.04375 $
8/15/2013
0.0175 $
2/15/2014
0.03875 $
2/15/2014
0.01375 $
8/15/2014
0.0425 $
8/15/2014
0.0075 $
2/15/2015
0.04 $
2/15/2015
0.01875 $
8/15/2015
0.0425 $
8/15/2015
0.005 $
2/15/2016
0.04 $
2/15/2016
0.02375 $
8/15/2016
0.0425 $
8/15/2016
0.0125 $
2/15/2017
0.045 $
2/15/2017
0.02125 $
Objective

a0

a0-a1

a0-a2

Portfolio

Portfolio

Portfolio

a0-a3

a0-a4

Portfolio

Portfolio