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.

Question

Quizplus · Accepted Answer

The statement in option E is not a shortcoming of the strategy because not assuming a flat term structure can actually lead to more precise estimations, as it considers the reality of varying interest rates over different maturities.

The Shortcomings of This Strategy Are the Following Except