Immunization Strategy for Corporate Liabilities

ABC Corporation is a large enterprise with significant future liabilities stemming from its defined benefit pension plan, totalizing $500 million due in 10 years. The plan's actuary has determined that the present value of the liabilities, assuming a discount rate of 4%, is $340 million. The corporation seeks to manage its liabilities through an immunization strategy to ensure it has sufficient funds available at the time the liabilities come due.

To execute this immunization strategy effectively, ABC Corporation is considering allocating its fixed-income portfolio such that it precisely matches the duration of its liabilities. The current fixed-income portfolio consists of a mix of bonds with varying maturities, yielding an average duration of 8 years.

Describe the steps ABC Corporation should take to implement a successful immunization strategy, ensuring that the present value of its assets matches the present value of its liabilities at the target date. Discuss the importance of duration matching, considerations of convexity, and potential rebalancing strategies over the investment horizon.