Immunization
Certified Financial Planner glossary · Certified Financial Planner
Definition
Matching portfolio duration to a liability horizon so that price and reinvestment effects offset.
Immunization in plain English
A pension board must pay a known liability in twelve years and fears both falling reinvestment rates and rising yields that mark bonds down. Immunization matches portfolio duration to the liability horizon so price effects and reinvestment effects offset as yields move. It is a liability-driven duration strategy, not "buy and hope" and not the same as pure cash-flow matching every coupon to every bill. Duration alignment that makes the two interest-rate pains cancel is immunization by name.
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