Immunization

Medicine

Finance

Immunization is the matching of the term (life) of an asset to the term (life) of the liability it is intended to pay off. For example, if a financial company is obligated to pay 100 dollars to someone in 10 years, then it can immunize itself, protect itself (against a term mismatch) by buying and holding a 10 year zero coupon bond that matures in 10 years and has a redemption value of $100.

The original theory of financial immunization was developed by an actuary within the Prudential Assurance Company of London, England. Immunization, if possible and complete, can protect against term mismatch but not against other kinds of financial risk such as default by the borrower (of a bond).