FINA 475 Lecture Notes - Lecture 10: Barclays Investment Bank, Corporate Bond, Life Insurance
27 Nov 2017
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Document Summary
Liability driven investing is concerned with controlling investment risk where benchmark for assessing performance is in reference to a client"s liabilities. Strategies involves managing assets and liabilities to achieve return objective or a series of liabilities. Life insurance companies use ldi strategies called immunization and cash flow matching for several products that they issue: annuities, guaranteed investment contracts that guarantee a minimum rate. Bond portfolio managers are given a mandate that involves their performance evaluation relative to a benchmark. Construction of a benchmark requires that a set of rules be specified to determine which issues should be included/excluded. Us bond market indexes are classified based on one or more of: Active bond portfolio strategies attempt to outperform and index by buying non-eligible of non-index securities. Once all the bond issues are identified, construction of the portfolio turns to how to weight each issue. Typical bond market index is based on market cap. Market cap = market value of bond issue.
