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Individual bonds provide the ability to match the cash flows needed, which is why the term "cash flow matching" is sometimes used to describe this strategy. Because the bonds are dedicated to providing the cash flows, the term "dedicated portfolio" or “asset dedication” is sometimes used to describe the strategy.
Cash flow matching is a process of hedging in which a company or other entity matches its cash outflows (i.e., financial obligations) with its cash inflows over a given time horizon. [1] It is a subset of immunization strategies in finance. [2] Cash flow matching is of particular importance to defined benefit pension plans. [3]
A cash flow hedge [1] is a hedge of the exposure to the variability of cash flow that: is attributable to a particular risk associated with a recognized asset or liability. Such as all or some future interest payments on variable rate debt or a highly probable forecast transaction and; could affect profit or loss (IAS 39, §86b)
The California Public Employees' Retirement System (CalPERS) is an agency in the California executive branch that "manages pension and health benefits for more than 1.5 million California public employees, retirees, and their families".
Dedicated portfolio theory, in finance, deals with the characteristics and features of a portfolio built to generate a predictable stream of future cash inflows.This is achieved by purchasing bonds and/or other fixed income securities (such as certificates of deposit) that can and usually are held to maturity to generate this predictable stream from the coupon interest and/or the repayment of ...
A hedge fund offers people the chance to invest in a portfolio, with returns based on how well the portfolio’s underlying investments do. The fund itself makes most of its money from the fees ...
Investment-grade bonds aren’t inherently better than high-yield bonds, it just depends on why you’re buying bonds. If you have a high risk tolerance or a long time before retirement, for ...
The theory is that a portfolio of assets (fixed interest bonds, zero coupon bonds, index-linked bonds, etc.) can be selected with cashflows identical to the magnitude and the timing of the cashflows to be valued. For example, suppose the cash flows over a 7-year period are, respectively, $2, $2, $2, $50, $2, $2, $102.