The shortcomings of this strategy are the following except
A)duration changes as the time to maturity changes, making it difficult to maintain a continuous hedge.
B)estimation of duration is difficult for some accounts such as demand deposits and passbook savings account.
C)it ignores convexity which can be distorting for large changes in interest rates.
D)it is difficult to compute market values for many assets and liabilities.
E)it does not assume a flat term structure, so its estimation is imprecise.
[Refer to: 9-121]

Question

Quizplus · Accepted Answer

The statement "it does not assume a flat term structure, so its estimation is imprecise" is incorrect as a shortcoming of the strategy because many interest rate risk management strategies, including duration-based hedging, often assume a flat term structure for simplification purposes. This assumption is not a shortcoming but rather a simplification that is commonly made in financial modeling.

The Shortcomings of This Strategy Are the Following Except