This preview shows page 1. Sign up to view the full content.
Unformatted text preview: principal. Barbell vs. the bullet. Barbelling refers to the use of a portfolio of short and long term bonds rather than intermediate maturity bonds. An asset liability manager might have liabilities each with duration equal to n a certain maturity and so the portfolio duration is equal to that maturity. Proceeds gained from incurring those liabilities could be used to purchase several assets with a duration equal to the liability portfolio, or to purchase very short or very long securities that average out top the liability duration. The former of these instances would represent a bullet portfolio and the latter would be a barbell portfolio. A barbell has greater convexity than a bullet because duration increases linearly with maturity while convexity increases with the square of maturity....
View Full Document
- Spring '11