Immunize a Bank’s Portfolio Assume a bank has the following (very simplified) balance sheet. Assets Mortgages Fixed rate
Posted: Thu Apr 28, 2022 2:01 pm
Immunize a Bank’s Portfolio Assume a bank has the following
(very simplified) balance sheet.
Assets
Mortgages
Fixed rate, 15 year, rate: 8%
Floating rate, 15 year, rate: LIBOR + 2%, (duration = 0)
Liabilities
Overnight deposits, rate: 0.6%, (duration = 0)
2 year CD, rate: 2%, assume it is a zero coupon
3 year CD, rate: 4%, assume it is a zero coupon
Calculate weights which will immunize the portfolio. Note this is a
set of weights, there is not one unique solution. You don’t have to
calculate the full set, just some set of weights which immunizes
the portfolio.
(very simplified) balance sheet.
Assets
Mortgages
Fixed rate, 15 year, rate: 8%
Floating rate, 15 year, rate: LIBOR + 2%, (duration = 0)
Liabilities
Overnight deposits, rate: 0.6%, (duration = 0)
2 year CD, rate: 2%, assume it is a zero coupon
3 year CD, rate: 4%, assume it is a zero coupon
Calculate weights which will immunize the portfolio. Note this is a
set of weights, there is not one unique solution. You don’t have to
calculate the full set, just some set of weights which immunizes
the portfolio.