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Bond DV01 and duration d v financial



The DV01 gives us the dollar change in bond price for a one basis point decline in the rate. We typically assume yield (YTM) is the rate change, so as Tuckman …

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Bond DV01 and duration

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Bond DV01 and duration
d v financial
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9 thoughts on “Bond DV01 and duration d v financial”

  1. Hi David, thanks for posting the video. It exactly what i was looking for. One question, i mostly invest in FRNs, can you please further explain why you use a factor of 10,000 in the denominator to calc the DV01.

  2. @Vampireddy although i am thinking that your 29.27 is the better mod duration (although, it's ironic to speak of a more precise approximation, if you know what i mean) because I think that is the the function of the slope of the tangent line at 5%. Whereas, I think mine would technically be a function of the slope of an almost identical but slightly off secant line.

  3. @Vampireddy great question. Your 29.27 is correct, of course, per your Mod duration = Mac duration/(1+y/k). The difference is b/c the DV01 is technically only the -1 bps, but there is not symmetry around the 5%. If we computed effective duration, we should get ~ 29.27; i.e., duration = (Price @ 4.99% – Price @ 5.01%)/(2*[email protected]%*1 bps). But, effectively, we only using half/one side. It doesn't really matter b/c both are linear approximations, the difference is the slight basis for the line

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