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Immunization

Definition

Immunization, or immunisation, is the process by which an individual's immune system becomes fortified against an agent.

What is 'Immunization'

Immunization, also known as "multiperiod immunization," is a strategy that matches the durations of assets and liabilities, thereby minimizing the impact of interest rates on the net worth.

Explaining 'Immunization'

Large firms and institutions have the ability protect their portfolios from exposure to interest rate fluctuations by using what is known as an immunization strategy. By using a perfect immunization strategy, firms can nearly guarantee that movements in interest rates will have virtually no impact on the value of their portfolios.

Cash Flow Matching Immunization Example

Assume an investor needs to pay a $10,000 obligation in five years. To immunize against this definite cash outflow, the investor can purchase a security that guarantees a $10,000 inflow in five years. A five-year zero-coupon bond with a redemption value of $10,000 would be suitable. By purchasing this bond, the investor matches the expected inflow and outflow of cash, and any change in interest rates would not affect his ability to pay the obligation in five years.

Duration Matching Immunization Example

To immunize a bond portfolio using the duration method, an investor must match the portfolio's duration to the investment time horizon in question. If an investor has a $10,000 obligation in five years, there are a few ways in which he can use duration matching: First, an investor can purchase a zero-coupon bond that matures in five years and equals $10,000. Second, an investor can purchase several coupon bonds that each have a five year duration and total $10,000. Third, an investor can purchase several coupon bonds that total $10,000 but have an average duration of five years when viewed together.


Further Reading


AN EMPIRICAL EXAMINATION OF ALTERNATIVE INTEREST RATE RISK IMMUNIZATION STRATEGIES.
elibrary.ru [PDF]
… ECONOMICS, FINANCE. АННОТАЦИЯ: Degree: Ph.D. DegreeYear: 1983 Institute: The University of Wisconsin - Madison. The interest rate risk of an asset refers to its price uncertainty as a result of interest rate fluctuations. The first study related to the immunization of interest …

Creating sustainable financing and support for immunization programs in fifteen developing countriesCreating sustainable financing and support for immunization programs in fifteen developing countries
www.healthaffairs.org [PDF]
… ECONOMICS, FINANCE. АННОТАЦИЯ: Degree: Ph.D. DegreeYear: 1983 Institute: The University of Wisconsin - Madison. The interest rate risk of an asset refers to its price uncertainty as a result of interest rate fluctuations. The first study related to the immunization of interest …

Study on Financing of Expanded Program on Immunization in Some Regions of ChinaStudy on Financing of Expanded Program on Immunization in Some Regions of China
en.cnki.com.cn [PDF]
… ECONOMICS, FINANCE. АННОТАЦИЯ: Degree: Ph.D. DegreeYear: 1983 Institute: The University of Wisconsin - Madison. The interest rate risk of an asset refers to its price uncertainty as a result of interest rate fluctuations. The first study related to the immunization of interest …

Study on Reasonable Input of Expanded Program on Immunization in Some Regions of China <span style=[J]' src='/thumbnails/?img=http%3A%2F%2Fen.cnki.com.cn%2FArticle_en%2FCJFDTotal-ZGJM200505023.htm' />Study on Reasonable Input of Expanded Program on Immunization in Some Regions of China [J]
en.cnki.com.cn [[J]' href='https:/api.miniature.io/pdf?url=en.cnki.com.cn%2FArticle_en%2FCJFDTotal-ZGJM200505023.htm'>PDF]
… ECONOMICS, FINANCE. АННОТАЦИЯ: Degree: Ph.D. DegreeYear: 1983 Institute: The University of Wisconsin - Madison. The interest rate risk of an asset refers to its price uncertainty as a result of interest rate fluctuations. The first study related to the immunization of interest …

Rhesus immunization after bone allografting: a case reportRhesus immunization after bone allografting: a case report
www.tandfonline.com [PDF]
… ECONOMICS, FINANCE. АННОТАЦИЯ: Degree: Ph.D. DegreeYear: 1983 Institute: The University of Wisconsin - Madison. The interest rate risk of an asset refers to its price uncertainty as a result of interest rate fluctuations. The first study related to the immunization of interest …

Gavi's transition policy: moving from development assistance to domestic financing of immunization programsGavi's transition policy: moving from development assistance to domestic financing of immunization programs
www.healthaffairs.org [PDF]
… ECONOMICS, FINANCE. АННОТАЦИЯ: Degree: Ph.D. DegreeYear: 1983 Institute: The University of Wisconsin - Madison. The interest rate risk of an asset refers to its price uncertainty as a result of interest rate fluctuations. The first study related to the immunization of interest …



Q&A About Immunization


How can large firms and institutions use immunization strategies?

Large firms and institutions have the ability to protect their portfolios from exposure to interest rate fluctuations by using what is known as an immunization strategy.

Who can benefit from using this strategy?

Firms with long-term obligations such as bonds or loans can benefit from using this strategy.

Are all vaccines cost effective or beneficial for public health?

Many vaccines have been highly cost effective and beneficial for public health.

How does vaccine development rely on funding from government, universities, non-profit organizations, and public health?

Vaccine development relies on push funding by government, universities, non-profit organizations, and public health.

What does perfect mean in terms of an immunization strategy?

Perfect means nearly guaranteeing that movements in interest rates will have virtually no impact on the value of their portfolios.

Where do these diseases exist?

Many of these diseases exist in poor countries.

Why don't pharmaceutical firms and biotechnology companies have much incentive to develop vaccines for poor countries?

Pharmaceutical firms and biotechnology companies have little incentive to develop vaccines for these diseases because there is little revenue potential.

What are some ways you can use duration matching for your portfolio?

You can purchase zero-coupon bonds maturing in five years that equal $1,000,000; you could purchase several coupon bonds each having a five year duration totaling $1,000,000; or you could purchase several coupon bonds totaling $1,000,000 but with an average duration of five years when viewed together.

What is the definition of immunization?

Immunization is a strategy that matches the durations of assets and liabilities, thereby minimizing the impact of interest rates on the net worth.