PPT Slide
l If the yields do not change, one may acquire a bond portfolio having a value equal to the present value of the stream of obligations. One can sell part of the portfolio whenever a particular cash obligation is required.
l A better solution requires matching the duration as well as present values of the portfolio and the future cash obligations.
l This process is called immunization (protection against changes in yield). By matching duration, portfolio value and present value of cash obligations will respond identically (to first order approximation) to a change in yield.