Portfolio Immunization and Cash Flow Matching: Techniques in Python for Liability-Driven Investing
In the world of finance, managing a portfolio to meet future liabilities is a critical task. Two primary techniques used for this purpose are portfolio immunization and cash flow matching. These techniques ensure that the portfolio is structured in such a way that it can meet future liabilities regardless of interest rate movements. In this tutorial, we will delve into these techniques using Python, focusing on real-world applications and data.
Introduction
Portfolio immunization and cash flow matching are essential strategies in liability-driven investing (LDI). Immunization involves structuring a portfolio such that its duration matches the duration of the liabilities, thereby minimizing the impact of interest rate changes. On the other hand, cash flow matching involves creating a portfolio where the cash flows from the assets match the timing and amount of the liabilities.
In this tutorial, we will use Python to implement these techniques. We will download real financial data using the yfinance library, perform calculations to match durations and cash flows and visualize the results using various plotting libraries. By the end of this tutorial, you will have a comprehensive understanding of how to implement these…
