1. In class, we saw that immunization reduces a firm or investor's exposure to interest rate...

 

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1. In class, we saw that immunization reduces a firm or investor's exposure to interest rate risk by matching the durations of assets and liabilities. We also know that duration breaks down as a good approximation to interest rate sensitivity for large(r) changes in rates. Could immunization be implemented with a convexity adjustment? Why or why not? 1. In class, we saw that immunization reduces a firm or investor's exposure to interest rate risk by matching the durations of assets and liabilities. We also know that duration breaks down as a good approximation to interest rate sensitivity for large(r) changes in rates. Could immunization be implemented with a convexity adjustment? Why or why not?

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Immunization is a strategy used to reduce interest rate risk by matching the durations of assets and ... View the full answer