If you're unaware of how this is done, it's simple -- the people who buy these things want a more-or-less "constant duration" because they are intending to meet some expected expense with the interest coupon. Â They attempt to match that duration against their perceived risk, and adjust for interest rate environment both today and what they expect tomorrow. So let's say that after much grinding of numbers Insurance Company "A" determines it needs a 10 year duration in its portfolio in order to earn the return it wants, hedge the risk it wants, and match the two against incoming cash...
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