In finance, interest rate immunization is a strategy that ensures that a change in interest rates will not affect the value of a portfolio.
Interest rate immunization can be accomplished by several methods, including
a) cash flow matching
b) duration matching
c) volatility and convexity matching.
It can also be accomplished by trading in bond forwards, futures, or options.
Other types of financial risks, such as foreign exchange risk or stock market risk, can be immunized using similar strategies.
If the immunization is incomplete, these strategies are usually called hedging.
If the immunization is complete, these strategies are usually called arbitrage.
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