Determine which of the following statements regarding asset-liability management techniques is true.

• Redington immunization requires that the convexity of the liabilities is greater than the convexity of the assets.
• An advantage of the Redington immunization technique over the cash-flow matching technique is that the portfolio manager has more investment choices available.
• Both Redington immunization and full immunization are based on the assumption that the yield curve has higher yields for longer term investments.
• A fully immunized portfolio ensures that the present value of assets will exceed the present value of liabilities with non-parallel shifts in the yield curve.
• A cash-flow matched portfolio requires less rebalancing than a Redington immunized portfolio, but more rebalancing than a fully immunized portfolio.

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

Solution: B

Cash-flow matching limits the number of investment choices available to the portfolio manager to a subset of the choices available for immunization.

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