ABSTRACT
This chapter presents the theory of immunisation in a way as to permit a more general application in practice. The key to the presentation is that, unless perfectly matched, a portfolio of assets and liabilities is normally immunised at one rate of interest only, and this rate is not, in general, the market rate. The contradiction arises because the theory of immunisation requires that any future investment or disinvestment be of such a nature that the yield obtainable on those assets bought in the future be equal to the yield then enjoyed on existing assets. It was argued that where it is possible to immunise assets and liabilities against future changes in the rate of interest it is unnecessary to have regard to any reinvestment rate of interest, even if future reinvestment will be required under the contracts being valued.
