Hi all, Why is the first Redington condition (that the value of assets and of liabilities must be equal) necessary for immunisation? Why do we not say that if the value of assets exceeds that of liabilities then the portfolio is even safer? Thanks
This confused me when I first studied it. Think of it as the funds set aside to immunise the liabilities rather than the total funds. We would hope that they have more assets than liabilities! But those not being used for immunisation are "free" assets.
