Fixed-Income Pricing and the Replication of Liabilities

Damir Filipović
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Damir Filipović: École Polytechnique Fédérale de Lausanne (EPFL); Swiss Finance Institute

No 25-108, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: This paper develops a model-free framework for static fixed-income pricing and the replication of liability cash flows. We show that the absence of static arbitrage across a universe of fixed-income instruments is equivalent to the existence of a strictly positive discount curve that reproduces all observed market prices. We then study the replication and super-replication of liabilities and establish conditions ensuring the existence of least-cost super-replicating portfolios, including a rigorous interpretation of swap-repo replication within this static framework. The results provide a unified foundation for discountcurve construction and liability-driven investment, with direct relevance for economic capital assessment and regulatory practice.

Keywords: Fixed-Income Pricing; Static Arbitrage; Discount Curves; Liability Replication; Swap-Repo Replication (search for similar items in EconPapers)
Pages: 10 pages
Date: 2025-12
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp25108

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