A company created a portfolio in order to protect its position using Redington immunization. Under which of the following changes in the yield rate is the immunization strategy guaranteed to be effective?

• Only a small decrease in the yield rate
• Only a small increase in the yield rate
• Only a small change in the yield rate
• Any decrease in the yield rate
• Any change in the yield rate

Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.

Solution: C

When a company’s position is Redington immunized, its position is definitely protected from sufficiently small changes in yield rate, in either direction. However, its position may or may not be protected from large changes in yield rate.

Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.