N°25-108: Fixed-Income Pricing and the Replication of Liabilities

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.