September 04, 2003

Duration

The duration of a bond (or a portfolio) is defined to be the percentage change in market value caused by a one percentage point change in the interest rate.

We can use calculus to determine the duration of a pure discount bond.

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We can also get some insight into the relation between duration and interest rate risk by running some calculations for pure discount bonds of various maturities and, hence, various durations.

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Posted by bparke at September 4, 2003 10:18 PM