Exercise 4.

12 Finding immunisation strategy

Spot Rate 0.045

Assets Liabilities Assets

Bond Type Amount Time Outgo (in $m) Present Value 10.83975
0.5 Year Bond 6.6802867 1 3 Duration 2.287121
5 year Bond 5.3646583 2 4 Convexity 11.32418
3 3
4 2

Table of comparison Table of spot rates for (d)

PV Asset PV Liabilities Surplus Time Rate
Increase to 6.5% 10.39 10.38 0.01 0.5 0.03
Decrease to 2.5% 11.34 11.33 0.01 1 0.035
Twist (d) 10.32 10.67 -0.35 1.5 0.04
Twist (e) 10.86 10.89 -0.03 2 0.045
2.5 0.05
3 0.055
3.5 0.06
4 0.065
4.5 0.07
5 0.075
Liabilities Difference
10.839745701 -1.136868E-13
2.2871212919 8.233414E-13
7.8403425151 3.4838381559 alpha 0.06
beta 0.01
gamma -0.08
lambda 0.6
Table of spot rates for (e)
Time Rate
0.5 0.0587897091
1 0.0512662884
1.5 0.0463698796
2 0.043331866
2.5 0.041596487
3 0.0407633123
3.5 0.0405450619
4 0.0407367099
4.5 0.0411928802
5 0.0418113304