Advances in Economics, Business and Management Research, volume 203

Proceedings of the 2021 3rd International Conference on Economic Management and

Cultural Industry (ICEMCI 2021)

Bond Pricing and Immunization Strategy - Asset

Allocation in Bond Investment
Yuyao Wang1, a, † Bixia Han2, b, †
1
Rutgers Newark College, Northeast Normal University, Changchun, 130000, China
2
School of Management, Xiamen University, Fujian Province, 361005, China
a
wangyy085@nenu.edu.cn, b33120182202082@stu.xmu.edu.cn
†
These authors contributed equally.

ABSTRACT
Asset allocation is a widely used financial term that fits most people. However, even in the most basic concept of asset
allocation, there is still existing risk or uncertainty. This paper aims to discuss the impact of different influencing factors
on bond pricing in the bond market and then further discuss the risk aversion strategy that can be analyzed through the
duration, also known as the immunization strategy. We also conduct sensitivity analysis of four different situations,
changing different yield rates and coupons and changing increasing yield rates and coupons at a certain rate. This paper
found that different yield rates, different coupons, and increasing yield rates have a linear relationship with the bond
price. In contrast, the increasing coupon with a certain ratio has a nonlinear relationship. Through immunization strategy,
it can develop an asset portfolio composed by a certain ratio. Also, using the immunization strategy can reduce the risks
that investors need to take and maximize their interests to a certain extent. The combination of a certain percentage of
zero-coupon government bonds and corporate bonds effectively shields investors from risk. This paper constructs the
issue of bond pricing, which is of practical significance for investors to evaluate their risk-bearing ability and purchasing
ability and to use the immunization strategy of hedging risk.

Keywords: Bond Price, Duration, Immunization strategy, Investment portfolio.

1. INTRODUCTION is of greatest concern. Therefore, many investors turn to

various bond management strategies to protect their bond
Bonds are one kind of debt security issued in portfolio from interest rate risk. There are overall two
connection with a borrowing arrangement that obligates categories of bond management strategies: passive
the issuer to make specified payments to the bondholders strategy and active strategy. This article will mainly focus
on specified dates [1]. Among all debt securities, on immunization strategy, one passive bond management
including those in the money market and the capital strategy used by many financial and funds institutions.
market, bonds are among the most common long-term
debt securities traded in the capital market. A developed Next, we will review the literature on bond pricing
bond market can provide local firms with access to direct and immunization strategy. For defaultable bonds,
financing, enhance the liquidity of the overall market and general pricing methods can be divided into two main
reduce systematic risk in the market [2]. Therefore, given categories: structural models originated from the pricing
the importance of the bond market, how to price bonds model proposed by Merton and reduced-form models or
traded in the bond market precisely is one top priority for intensity models. Merton presented a simplified model
the healthy and sustainable development of the bond that can value each component of the firm’s liability mix.
market. Despite being simple and innovative, Merton’s pricing
model was inevitably subject to its simplified
Moreover, bonds traded in the capital market are assumptions about its liability structure and costless
exposed to various kinds of risks, including default risk, bankruptcy. Therefore, many scholars, including Black
liquidity risk, and interest rate risk, and so on. For most and Cox, Leland and Fan, and Sundaresan, had
bond portfolio managers, the sensitivity of bond prices to incorporated more realistic assumptions into the Merton
changes in market interest rates, that is, interest rate risk model [3]. For the default-free bond, Longstaff and

Copyright © 2021 The Authors. Published by Atlantis Press International B.V.

This is an open access article distributed under the CC BY-NC 4.0 license -http://creativecommons.org/licenses/by-nc/4.0/. 454
 Advances in Economics, Business and Management Research, volume 203

Schwartz found that the risk of a default-free bond stems immunization strategy and mentions immunization
from two major sources: interest rate shifts and changes strategy’s limitations; Section 6 presents our conclusions.
in bond market volatility, and that changes in the
volatility of interest rates have the greatest impact on the 2. BACKGROUND DESCRIPTION
prices and yields of intermediate-term bonds [4].
Macaulay duration is of great significance to bond
Over the past few decades, there are lots of studies pricing. The calculated Macaulay duration can be
focusing on bond portfolio management. Redington, in combined with an immunization strategy to help
1952 first introduced the concept of immunization based investors avoid risks [7].
on the assumption of flat term-structure [5]. Later, Fisher
and Weil in 1971 modified Redington’s approach and According to Frederick Robertson Macaulay’s
expanded immunization strategy by taking into account research, bond interest rate, maturity period, and yield to
the natural shifts of interest rate [6]. After 1971, several maturity are closely related to bond price. He proposed
more advanced theories about immunization strategies five theorems of bond pricing that are still regarded as
were continuously proposed, including Bierwag and classic nowadays.
Khang’s maximin theory, Leibowitz and Weinberger’s In this research, we conduct about the relationship
contingent immunization, and Bierwag and Khang’s between bond price and different factors. Generally
multiple shocks, and so on. speaking, bond pricing is divided into two dimensions:
In the paper, we first introduced discounted cash flow internal and external factors. Internal factors include the
concepts, duration, and modified duration. Secondly, we face value, the coupon interest; the validity period;
listed the pricing methods, including zero-coupon bonds, whether it can be redeemed in advance; whether it is
fixed-rate coupon bonds, and floating-rate coupon bonds. convertible; liquidity, and the possibility of default.
And then conducted a sensitivity analysis of bond prices External factors include risk-free interest rates, market
when changing bond yield rates and coupon rates, interest rates, and inflation rates [8].
respectively. After that, we studied one passive bond Bond price always depends on his present value. The
management strategy, immunization strategy, and present value in accounting measurement refers to the
conducted an empirical test to construct one real situation future cash flow value after being discounted at an
where one investor needs to construct his bond portfolio appropriate rate. It is a measurement attribute that
to fund future payment and test the effectiveness of considers the time value of money. To understand how to
immunization strategy. In the last, we listed some price a particular bond, the concept of present value
limitations about immunization strategy. should be introduced first, which is needed to be obtained
As for the sensitivity analysis found that bond prices in the calculation and has some practical significance for
and bond yields generally show an inverse relationship. the understanding duration. Generally speaking, there are
When other conditions remain unchanged, as the yield two big categories of bonds: fixed-rate bonds and
rate increases at the same amount, the bond price falls at floating-rate bonds. A zero-coupon bond is a kind of
a certain rate; while the yield rate increases at a certain fixed-rate bond where the coupon rate equals zero. This
rate, the price of the bond falls more and more sharply. It kind of bond is issued at a discount, does not carry
is generally a positive correlation between bond price and coupons, and pays a lump sum of principal and interest at
coupon. When other conditions remain unchanged, as the face value on maturity.
coupon (coupon rate) increases at the same amount, the The immunization strategy is aimed to manage the
price of the bond increases at a certain rate, while the bond portfolio. For any bond, interest rate fluctuations
coupon (coupon rate) increases at a certain rate, the price have opposite effects on long-term and short-term bonds
of the bond goes up more and more dramatically. As for [9]. By selecting a bond portfolio with a Macaulay
the empirical test, we found that one constructed bond duration equal to the maturity of its liabilities (cash
portfolio can be immunized from the fluctuation of outflow), the manager can ensure a fixed cash flow after
interest rate when the interest rate changes insignificantly. a certain period by taking advantage of the offset
But as time goes by, the duration of bonds and the characteristics of price risk and reinvestment risk.
duration of liability do not match, which means that the
investors need to rebalance their bond portfolio. This paper aims to propose an immunization strategy
by integrating different bond varieties, which can lower
The remainder of the paper is organized as follows: the risk for the investors.
Section 2 describes basic background about bond pricing,
Macaulay duration, and immunization strategy; Section 3
3. PRICING THE BOND
introduces bond pricing methods for different kinds of
bonds and performs one sensitivity analysis of bond Bond pricing is for risk management, so as important
prices; Section 4 describes modified duration based on as price is the sensitivity of the bond. For interest rate
the Macaulay duration; Section 5 introduces sensitivity, the most important is duration and convexity.
immunization strategy, conducts an empirical test for

455
 Advances in Economics, Business and Management Research, volume 203

Mathematically, you can use these two to approximate a P0 is the price of the zero-coupon bond, F is the face
bond as a quadratic function. More importantly, the value of a bond, r is yield to maturity (YTM), and n is the
values and symbols of the two reflect important number of periods to maturity.
characteristics of bonds. For example, the convexity of a
When we plug the zero-coupon pricing formula into
normal bond is positive, but it's negative for mortgage-
the general duration formula above, we get the following
backed security (MBS). The reason is that when the
formula:
interest rate is low, the price of ordinary bonds will rise,
but the price of MBS tends to level off. When the interest 𝐷0 = 𝑛 （4）
rate is low, the buyers will choose to exercise the second
loan to pay off the original high-interest mortgage, D0 is the duration of a zero-coupon bond, n is the
making it difficult for the price to exceed the parity. number of periods to maturity.
This paper mainly discusses bond pricing based on
mathematical methods, which uses interest rate and 3.2. Fixed-Rate Bond
coupon to calculate the present value of bonds. In
Fixed-rate bonds are bonds that pay the same interest
addition, this paper will compare the influence of
rate for the entire term of the bond. Investors can choose
different factors on the present value of bonds and
from fixed-rate bonds in the form of treasury bills,
combine the concept of duration to make a tentative plan
corporate bonds, municipal bonds, or certificates of
of immunization strategy.
deposit if they want a guaranteed interest rate for a
The following is the mathematical formula for the specified period.
present value of bonds:
𝐶𝑛 𝐹 3.3. Floating Rate Bond
𝑃 = ∑𝑛𝑖=1 + (1)
(1+𝑟)𝑛 (1+𝑟)𝑛
A floating rate fund is a fund that invests in financial
where C is periodic coupon payment, F is the face instruments that pays a variable or floating interest rate
value of a bond, r is yield to maturity (YTM), n is the [11]. A floating rate fund, which can be a mutual fund or
number of periods to maturity. an exchange-traded fund (ETF), invests in bonds and debt
The following formula is used to calculate the instruments whose interest payments fluctuate with an
Macaulay duration [10]: underlying interest rate level. Typically, a fixed-rate
𝐶𝐹𝑛
investment will have a stable, predictable income.
(1+𝑟)𝑛 However, as interest rates rise, fixed-rate investments lag
𝐷 = ∑𝑛𝑖=1 𝑛 (2)
𝑃 behind the market since their returns remain fixed.
Floating rate funds aim to provide investors with a
where, CF is periodic cash flow, P is the present flexible interest income in a rising rate environment. As
value of a bond, r is yield to maturity (YTM), n is the a result, floating-rate funds have gained popularity as
number of periods to maturity. investors look to boost the yield of their portfolios.

3.1. Zero-Coupon Bond Next, according to the pricing formulas given above,
we want to investigate different factors’
Based on the above pricing model, we discuss the
different present values of various bonds such as a zero- 3.4. Sensitive Analysis
coupon bond, fixed-rate bond, bond with an increased
bond rate, and bond with different yield rates. Firstly, the This section mainly studied the sensitivity of bonds’
zero-coupon bond is issued at a discount that does not value on different factors, including yield rate and
carry coupons and pays a lump sum of principal and coupon rate.
interest at face value on maturity. The biggest feature of
zero-coupon bonds is that they avoid the risk of 3.4.1. Different Yield Rates
reinvesting the interest earned by the investor. Investors
get a discount (that is, a discount to their face value) when Now assume that there are five different bonds, and
they buy a zero-coupon bond and receive the face value they all have the same face value of 1000$, coupon of
at maturity. Because of these characteristics, zero-coupon 100$, 3 years maturity. We are going to analyze the
bonds are particularly sensitive to changes in interest relationship between the yield to maturity and present
rates. In general, bond prices and interest rates change in value by using different yield rates:
an inverse relationship.
The following formula is used to calculate the zero-
coupon bond:
𝐹
𝑃0 = (3)
(1+𝑟)𝑛

456
 Advances in Economics, Business and Management Research, volume 203

Figure 1 The relationship between different yield rate

Figure 3 The relationship between different coupon
and bond price
(coupon rate) and bond price
The figure 1 shows that the bond price will decrease
Figure 3 indicates that the bond price will stably
with the different yield rate growing at the same
increase with the different coupons (coupon rate),
amount.
growing at the same amount.
3.4.2. Increasing Yield Rates
3.4.4. Increasing Coupon Rates
Now make an assumption very similar to the one
Five different bonds have similar conditions as we
above, and there are five different bonds, and they all
mentioned before, and they all have the same face value
have the same face value of 1000$, coupon of 100$, 3
of $1000, the yield rate of 10%, 3 years maturity. We will
years maturity. We are going to analyze the relationship
analyze the relationship between the increasing coupon
between the increasing yield to maturity and present
and present value by using various coupon rates of 10%
value by using various yield rates at the increase rate
and at the increase rate m=10%.
a=10%:

Figure 4 The relationship between increasing coupon

(coupon rate) and bond price
Figure 2 The relationship between increasing yield rate Figure 4 indicates that the bond price will increase
and bond price more and more sharply with the different coupon (coupon
Figure 2 shows that the bond price will decrease rate), which is growing at a stated rate.
more and more sharply with the increasing yield rate, In conclusion, we discussed the general relationship
which is growing at a stated rate. between bond prices and yield rate and coupon rate. Bond
prices and bond yields generally show an inverse
3.4.3. Different Coupon Rates relationship. When other conditions remain unchanged,
as the yield rate increases at the same amount, the bond
After discussing the relationship between the bond price falls at a certain rate, while the yield rate increases
yield and the price, let’s talk about another five different at a certain rate, the price of the bond falls more and more
bonds, and they all have the same face value of $1000, sharply. There is generally a positive correlation between
the yield rate of 10%, 3 years maturity. We will analyze bond price and coupon. When other conditions remain
the relationship between the increasing coupon and unchanged, as the coupon (coupon rate) increases at the
present value by using various coupon rates of 10%. same amount, the price of the bond increases at a certain
rate, while the coupon (coupon rate) increases at a certain
rate, the price of the bond goes up more and more
dramatically.

457
 Advances in Economics, Business and Management Research, volume 203

4. MODIFIED DURATION 5. IMMUNIZATION STRATEGY

In this section, we introduced the concept of modified In this section, we introduced one passive bond
duration and gave the formula of it. What is more, based management strategy, that is, the immunization model
on the limitation of duration in estimating the bonds’ clarified its main principles and gave its formula.
price change, we discussed the advantage of using Moreover, to test its immunization effect, we conducted
modified duration to calculate the percentage change of one empirical test and drew the corresponding conclusion.
bonds’ price when the interest rate changes. Modified Finally, we discussed its limitations.
duration is defined as
𝐷 5.1. Immunization model
𝐷∗ = (5)
(1+𝑦)
Immunization strategy is one passive bond
y refers to the bond’s yield to maturity; D refers to the management strategy used by investors to shield their
duration of one bond. assets from exposure to interest rate risk. To be specific,
Modified duration derives from Macaulay’s duration. this strategy seeks to establish a virtually zero-risk bond
Macaulay’s duration measures the weighted average of portfolio, in which interest rate fluctuation has no impact
the times to each coupon or principal payment, which on the firm's value.
indirectly implies the sensitivity of one bond to interest Before explaining the immunization strategy in detail,
risk. Macaulay’s duration can also be expressed as the we need to clarify two components of interest risk first.
following formula, that is, In general, if the interest rate changes after one investor
∆𝑃 purchased one bond, he may be exposed to two specific
𝑃
𝐷 = − ∆(1+𝑦) (6) risks. The first one is price risk, which means that the
(1+𝑦)
bond’s terminal price will be affected by the interest rate
where ∆𝑃 refers to the monetary change of bond’s price; change. Another one is coupon reinvestment risk
P refers to bond’s price; y refers to the bond’s yield to resulting from reinvesting the coupons at interest rates
maturity. different from the yield to maturity on the bond at the
time of purchase. The total effect of these two risks varies
However, in reality, most investors care about the
in opposite directions when the interest rate changes. For
proportional price change when the bond’s yield changes.
example, when the interest rate increase, the price of a
Using duration to calculate the percentage of a bond’s
bond will decrease, while the reinvested yield of coupons
price change is not straightforward enough. Therefore,
will increase, and vice versa. [13]
modified duration was proposed to gauge the changes in
the value of an asset that occurs in response to a parallel Therefore, an effective immunization requires that
shift in interest rates [12], which greatly simplifies the these two opposite effects offset each other, thereby
calculation of the percentage of bond’s price change. By guaranteeing that the asset's future value will not be
using modified duration, we can get the following affected by the fluctuation of interest rate.
formula, that is,
Actually, the concept of immunization was first
∆𝑃 ∆𝑃
𝐷 proposed by F.M.Redington, an actuary for a life
𝐷∗ = = 𝑃
= 𝑃
(7) insurance company, in an article ‘Review of the Principle
(1+𝑦) ∆(1+𝑦) ∆𝑦
of Life-Office Valuations’ in 1952. He assumed a flat
where, ∆𝑃 refers to the monetary change of bond’s
term structure and then showed that if the duration of an
price; P refers to bond’s price; y refers to the bond’s
asset portfolio matched the duration of liabilities,
yield to maturity.
changes in interest rates over time would affect the value
From the perspective of calculus, the modified of liabilities to the same extent as these changes affected
duration can be expressed as the first derivative of the the value of assets.[14]
bond’s price with respect to changes in the bond’s yield
There are overall two steps in using the immunization
divided by bond price. Thus, the formula for the
strategy. The first step is to match the duration of asset
modified duration can also be expressed as:
and liability investors hold in their portfolios. The same
1 𝑑𝑃
𝐷∗ = − × (8) asset and liability duration implies that assets and
𝑃 𝑑𝑦
liabilities have the same sensitivity to interest rate
In this way, the percentage of a bond’s price change fluctuation.
is just the product of modified duration and the change in
The formula can be expressed as below:
bond’s yield, which makes the calculation much easier
than before. ∑𝑛𝑖=1 𝐷𝑖 × 𝑤𝑖 = ∑𝑚
𝑗=𝑖 𝐷𝑗 × 𝑤𝑗 (9)

458
 Advances in Economics, Business and Management Research, volume 203

Di refers to the duration of bond i; wi refers to the unit of each bond, we can get the exact units needed to be
portfolio share of bond i; Dj refers to the duration of bought.
liability j; wj refers to the share of liability j.
Through the calculations, the units of government
The second step is to match the present value of assets bond and corporate bond needed to be bought
and liabilities. These two rules can, to some extent, respectively are 90.07 and 74.14.
guarantee that assets’ and liabilities’ value change can
Therefore, from the above working process, we can
offset against each other when interest rate fluctuates.
conclude that the student should allocate 50.94% of his
fund to invest zero-coupon bond and 49.06% of his fund
5.2. Empirical test to invest corporate coupon bond to make the one-off
payment three years later.
5.2.1. Constructing the empirical model
In this section, we made an empirical test to examine 5.2.2. Testing the effect of change of interest rate
the effectiveness of the immunization strategy. After constructing the portfolio, the next thing we
Try to assume that one student will need to make a need to do is to test its immunization effect, that is,
one-off tuition payment of $17,000 after three years from whether this strategy can shield the portfolio from
now. He wonders how to construct the portfolio to fund interest risk.
future payments. There are two kinds of bonds in the Therefore, we list several scenarios to simulate the
financial market: fluctuation of interest rates in the market.
The first is one zero-coupon government bond, with And in each scenario, we can calculate the value of
a face value of $100, a current price of $85.48, and assets after three years. The formula of the future value
remaining life of 4 years. of assets is given below:
The second is one corporate bond, with a face value Future value of assets
of $100, the current price of $100, an annual coupon of
$4, and remaining life of 2 years. = value of zero-coupon bond + value of coupon bond
face value of zero−coupon bond
Assume all debt has the same level of default risk. = × units +
(1+discount rate)
The benchmark yield curve for fixed-income investments annual coupon of corporate bond
of the same riskiness is flat at a level of 4% p.a. [ (1+discount rate)2
+
annual coupon+face value
Using the Macaulay duration formula, we can ] × units (12)
(1+discount rate)
calculate the duration of the zero-coupon bond and the
Figure 5 gives the sensitivity of the future value of
corporate bond, respectively 4 years and 1.96 years.
assets on changes in the interest rate, in a wide range
What is more, the duration of the liability is three between 2.5% and 5.5%.
years.
For the duration is additive, we can construct the
following formula to match the duration of assets and
liabilities:
𝑤𝐺𝐵 × 4 + 𝑤𝐶𝐵 × 1.9615 = 3 (10)
where, wGB refers the proportion of zero-coupon
government bond in the bond portfolio; wCB refers the
proportion of coupon corporate in the bond portfolio.
wGB = 50.94%
wCB = 49.06% Figure 5 Sensitivity of Future Value on Changes in
the Interest Rate
What is more, we can get the present value of the
liability to be: From the above graph, it can be easily observed that
17000 when the interest rate changes insignificantly, the future
= 15,112.94 (11)
(1+4%)3 value of assets changes little, around $17000, which
Therefore, we can get the present value and exact means that despite the fluctuation of interest rate, the
units of each bond we should hold. By multiplying the asset's future value can still keep unaffected.
proportions of two bonds and the total money the investor
has, we can get the respective total amount of each bond
the investor should hold. And then, we know the price per

459
 Advances in Economics, Business and Management Research, volume 203

5.3 Some limitations about immunization This paper discusses three aspects: bond pricing
strategy modified duration and immunization strategy.
Firstly, we use sensitivity analysis to study the effect
According to the above analysis, there still exist some
of yield rate and coupon rate on the bond price under
limitations to the immunization strategy. First, the
different growth conditions. Secondly, we give some
duration of bonds will be affected by various factors,
details on the modified duration to simplify the
including bonds’ residual maturity and interest rate,
calculation of bonds’ price change when a percentage
which can be directly seen through the formula of
change of bond’s yield is given. To be more specific, the
Macaulay duration. The change of interest rate will
percentage of a bond’s price change is just the product of
influence the expected stream of each future payment and
modified duration and the change in the bond’s yield.
thus the price of a bond. Thus, when the interest rate
Thirdly, from the empirical test, it can be known that
changes, the duration of one bond will inevitably vary.
once the investor matches the duration of the bond
Even if we assume that the interest rate does not change,
portfolio and the duration of liability, the investor can
the bonds’ duration will still change with time. For
shield his portfolio from the fluctuation of interest rate
coupon bonds, duration generally decreases less rapidly
when it changes insignificantly. However, there are some
than maturities dose. However, for the one-off payment
limitations to the immunization strategy, including
liability, its duration equals its maturity. Thus, as time
rebalancing, duration limitations, and the assumption of
passes, bond portfolio and liability duration will fall at
the flat term structure of interest. There is a possible
different rates [15].
portfolio of bonds by using the immunization strategy.
Therefore, when these factors change, the duration of The first is one zero-coupon government bond, with a
bonds varies as well. The duration of assets and that of face value of $100, a current price of $85.48, and
liability become unmatched. The immunization strategy remaining life of 4 years. The second is one corporate
necessitates continuous rebalancing so that investors can bond, with a face value of $100, a current price of $100,
guarantee that their portfolio is well immunized. an annual coupon of $4, and remaining life of 2 years.
Therefore, from the above working process, we can
Secondly, because immunization strategy is based on
conclude that the student should allocate 50.94% of his
duration, immunization strategy is inevitably subject to
fund to invest zero-coupon bond and 49.06% of his fund
the limitation of duration. According to the modified
to invest corporate coupon bond to make the one-off
duration formula, which directly derives from Macaulay
payment three years later.
duration, we know that it implies that the percentage of a
bond’s price change is directly proportional to the change Although this paper has a sufficient theoretical
in the bond’s yield. However, if we draw the graph of the structure and derivation process, it still has some defects
percentage change in bond price as a function of the in the actual process of data collection and innovative
change in its yield, it can be obviously found that the plot modeling. In addition, according to the actual policy and
is not linear. For small changes in bond yield, the the current situation of the world economic environment,
duration’s approximation is quite accurate, while for this paper should also make some corresponding mention
significant changes in bond yield, the duration’s and adjustment. Future research should pay more
approximation is inaccurate to some extent. attention to the macro direction of the world economy to
provide the detailed allocation of bond portfolio and data
Thirdly, the immunization strategy mentioned before
simulation results for subsequent researchers to study
is based on the concept proposed by F.M.Redington. He
assumed the term structure of interest to be flat so that the
constant discount rate would be applied to discount all REFERENCES
the cash flows generated by holding bonds.[16] However, [1]. Zvi Bodie, & Alex Kane. (2011). Investments (9th
this assumption is unrealistic because of the frequent edition)
shifts in the term structure of interest rates during the
holding period. Therefore, Redington’s measure of [2]. Ivanova, Y. P. (2004). Developing domestic bond
duration does not provide an accurate measure for markets: Importance, alternatives, prerequisites and
changes in the pattern of the discount rate. sequence (Order No. 1463331).
[3]. Teixeira, J. C. A. (2007). An empirical analysis of
6. CONCLUSION structural models of corporate debt pricing. Applied
This paper mainly introduces the universality and Financial Economics, 17(14), 1141.
practical significance of asset allocation, according to the [4]. Longstaff, F. A., & Schwartz, E. S. (1993).
bond pricing and duration calculation, using the Implementation of the longstaff-schwartz interest
sensitivity analysis and the idea of an immune strategy to rate model. The Journal of Fixed Income, 3(2), 7.
make a specific bond allocation into an asset portfolio, to
help investors to avoid risks.

460
 Advances in Economics, Business and Management Research, volume 203

[5]. F.M. Redington. (1952). Review of the Principles of

Life-Office Valuations, Journal of the Institute of
Actuaries 78, no. 3:286-315
[6]. Lawrence Fisher and Roman L.Weil. (1971). Coping
with the Risk of Interest Rate Fluctuations: Returns
to bondholders from Naive and Optimal Strategies.
Journal of Business 44, no.4
[7]. Lano, K., & Haughton, H. (2019). Financial Software
Engineering (1st ed. 2019.). Springer International
Publishing. https://doi.org/10.1007/978-3-030-
14050-2
[8]. Macaulay, F. R. (1938). Some theoretical problems
suggested by the movements of interest rates, bond
yields and stock prices in the United States since
1856. New York, America: National Bureau of
Economic Research.
[9]. La Grandville, O. (2001). Bond pricing and portfolio
analysis protecting investors in the long run. MIT
Press.
[10]. Lano, K., & Haughton, H. (2019). Financial
Software Engineering (1st ed. 2019.). Springer
International Publishing.
https://doi.org/10.1007/978-3-030-14050-2
[11]. Murphy, C. (2021, March 04). How floating rate
funds can offer yields in a rising rate market.
Retrieved April 16, 2021, from
https://www.investopedia.com/terms/f/floating-
rate-fund.asp
[12]. Cohen, H. (1993). Beyond duration: Measuring
interest rate exposure. Economic Review - Federal
Reserve Bank of Atlanta, 78(2), 23.
[13]. TARK, C. S. (1987). Duration And An Alternative
Bond Portfolio Immunization Strategy (Order No.
8802144). Available from ABI/INFORM
Collection. (303660134).]
[14]. Fisher, L., & Weil, R. L. (1971). COPING WITH
THE RISK OF INTEREST-RATE
FLUCTUATIONS: RETURNS TO
BONDHOLDERS FROM NAIVE AND
OPTIMAL STRATEGIES. The Journal of Business
(Pre-1986), 44(3), 408.
[15]. Bodie, Z. (1988). Pension fund investment policy.
Cambridge: National Bureau of Economic
Research, Inc.
[16]. TARK, C. S. (1987). Duration And An Alternative
Bond Portfolio Immunization Strategy (Order No.
8802144). Available from ABI/INFORM
Collection. (303660134)

461