Understanding Duration Matching

Very Easy Liability-driven Strategies Duration Matching

Maria is a fixed income portfolio manager responsible for managing a bond portfolio that aims to meet specific future liabilities. To effectively align the portfolio with these liabilities, she decides to utilize a duration matching strategy. Duration matching is a technique used to ensure that the interest rate sensitivity of the bond portfolio corresponds with the timing of the liabilities.

Given this context, which of the following statements about duration matching is correct?

Duration matching involves adjusting the duration of the portfolio to be shorter than the duration of the liabilities.

Duration matching ensures that the duration of the portfolio is equal to the duration of the liabilities.

Duration matching focuses on maximizing the total return of the portfolio regardless of the liabilities.

Hint

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