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Fixed-Income Pricing and the Replication of Liabilities

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  • Damir Filipovi'c

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 discount-curve construction and liability-driven investment, with direct relevance for economic capital assessment and regulatory practice.

Suggested Citation

  • Damir Filipovi'c, 2025. "Fixed-Income Pricing and the Replication of Liabilities," Papers 2512.14662, arXiv.org, revised Dec 2025.
    • Handle: RePEc:arx:papers:2512.14662
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    File URL: http://arxiv.org/pdf/2512.14662
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