Question

Explain briefly why duration matched portfolios need to be actively managed?

Answer 1

Duration Matched Portfolio:

Duration Matched Portfolio are those portfolio which have an immunization strategy where one matches Duration of assets Portfolio to the duration of Liabilities.

Why Actively Management is Required ?

A method of assembling a bond portfolio so that the duration of the portfolio equals the duration of the investor's liability stream. Compare cash matching strategy. In such using Duration Matching into the Portfolio where their is both asset and libilities or Equity and Debt should be matched as per their duration.

An immunization strategy in which one matches the duration of assets in a portfolio to the duration of the liabilities. Duration is the number of years until the investor receive the present.

To Manage this Portfolio actively looking into the Assets as well Liabilities is Required Basis on which the Value of all Income from bond incl. Interest and Principal used to Gauge Sesitivity to Interest Rate Change. And to reduce the portfolioo's Sensitivity to interest rates in order to reduce the risk of loss to the holder.