Assess liability-driven strategies across a range of interest rate scenarios and choose the one that best meets the portfolio's goals
The idea
Shock the curve (parallel moves, steepening, flattening, twists) and compare the changes in asset and liability values. A money-duration match protects the surplus against small parallel shifts; convexity decides whether larger shifts help or hurt, and non-parallel shifts expose timing mismatches. The hedge needed is the basis point value gap ÷ the BPV of one unit of the hedge. A hedge ratio below 100% leaves a deliberate bet that rates will rise. A receive-fixed swap hedges both ways; a receiver swaption protects against falling rates for a premium while keeping the gain if rates rise; a collar lowers cost but caps that gain. Choose the strategy that best protects funded status within the sponsor's budget and tolerance.
In the app: 2 practice questions on this outcome, a narrated walkthrough with diagrams, spaced review that brings it back before you forget it.
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