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There is no generic solution. However, the KKT conditions are of the forms \begin{align*} \begin{cases} Qy + \lambda_1 \mu +\lambda_2 Py = 0,\\ \mu^T y = 1,\\ y^TPy \leq k^2 \sigma^2,\\ \lambda_2 \big( y^TPy - k^2 \sigma^2\big) = 0. \end{cases} \end{align*} Here, the condition $$\lambda_2 \big( y^TPy - k^2 \sigma^2\big) = 0 $$ means that two cases need to ...


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With a dedicated portfolio all interest rate risk has been eliminated, since you hold ZCB's that deliver exactly the cash you need when you need it. So it is a perfect hedge against i.r. risk. With an immunized portfolio you have reduced i.r. risk (by matching duration and convexity) but you still have a probability distribution of outcomes. Yields at ...



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