Strategies · Library · Fixed income
§5.5Hedges and structures
Bond immunization
Build a bond portfolio whose duration equals the time until a known future payment, so a parallel move in rates leaves the funding result about unchanged. With three bonds convexity can be matched too.
- Asset class
- Fixed income
- Held for
- Years
- Data
- Needs data ARCANE lacks
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Duration and convexity of each bond versus the payment date
- Entry and exit
- Solve for dollar amounts that hit target duration; rebalance as rates change.
- Sizing
- Solved from duration (and convexity) equations
How it fails
- Only parallel shifts are covered
- Frequent rebalancing costs
- Yields differ across bonds
Data it needs
- inputs ARCANE does not hold
Needs individual bond durations and yields, which ARCANE lacks.
How ARCANE uses it
Not a Call strategy; Alpha can explain it when asked (paper only).
Duration-matching needs bond-level analytics not in the language.
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §5.5, p. 71 of the SSRN version. Described in our words. Hedges and structures is ARCANE’s filing, not the book’s.