Immunization Strategies for Funding Multiple Inflation-Linked Retirement Income Benefits

Protecting against unexpected yield curve, inflation, and longevity shifts are some of the most critical issues institutional private investors must solve when managing post-retirement income benefits. This paper empirically investigates performance alternative immunization strategies for funding targeted multiple liabilities that fixed in timing but random size (inflation-linked), i.e., change stochastically according to consumer price or wage level indexes. The procedure is based on a minimax strategy considering M-Absolute as interest rate risk measure. We investigate what extent inflation-hedging properties ILBs asset liability management immunize superior nominal bonds. use two datasets comprising daily closing prices U.S. Treasuries inflation-linked bonds from 2000 2018. tested over 3-year 5-year investment horizons, uses real not simulated bond data takes into consideration impact transaction costs selection optimal strategies. results show using outperforms equivalent robust even nearly zero scenario. These have important implications design structuring ALM liability-driven strategies, particularly retirement providers such pension schemes life insurance companies.