Goal of Immunization Strategy

Very Easy Liability-driven Strategies Immunization

John is a financial analyst working for a pension fund that has liabilities maturing in 5 years. To manage risk and ensure that his portfolio can meet these future liabilities, he is considering using an immunization strategy. Immunization involves structuring a bond portfolio such that its duration matches the duration of the liabilities.

Given this context, what is the primary goal of an immunization strategy?

To maximize the capital gains of the bond portfolio.

To ensure that the bond portfolio can meet future liabilities regardless of interest rate changes.

To invest solely in high-yield bonds to achieve higher returns.

Hint

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