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R Programming for Actuarial Science
book

R Programming for Actuarial Science

by Peter McQuire, Alfred Kume
October 2023
Intermediate to advanced content levelIntermediate to advanced
640 pages
16h 23m
English
Wiley
Content preview from R Programming for Actuarial Science

12 Immunisation – Redington and Beyond

Peter McQuire

Remark 12.1 The reader may wish to ensure they are familiar with the material in Chapter 9 before studying this chapter.

12.1 Introduction

In 1952 Frank Redington published an article which proposed a method for designing a bond investment strategy which could remove interest rate risk resulting from small parallel changes in the yield curve. In this chapter we discuss the key points of Redington’s theory and look at various examples. Of equal importance, we also look at potential issues with the theory, and how to deal with these problems in practice.

First, we look at a number of simple scenarios, and construct asset portfolios consisting of one or two zero coupon bonds to demonstrate how Redington theory can be used to ensure that the value of the assets, upper A, always exceeds the value of the liabilities, upper L, (given that upper A equals upper L at t equals 0) following a parallel change in interest rates.

We proceed by analysing a more realistic situation where the liabilities consist of several future payments and will aim to construct a larger ...

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Publisher Resources

ISBN: 9781119754978Purchase Link