Title: A Guide to Fixed Income Portfolio Management Using Risk Duration, Reward Duration, and Duration Ratio as Alternatives to Effective Duration and Convexity
Abstract:1) Macaulay's duration (a.k.a. duration) and modified duration are not effective risk management measurements on callable or pre-payable bonds. They are fine on non-callable and non-pre-payable bonds....1) Macaulay's duration (a.k.a. duration) and modified duration are not effective risk management measurements on callable or pre-payable bonds. They are fine on non-callable and non-pre-payable bonds. 2) Effective duration is useful on callable and pre-payable bonds, HOWEVER, it is useless by itself. Convexity MUST be combined with effective duration in order to be of value in fixed income risk management. 3) Effective duration and convexity combined, though technically accurate, are very difficult to interpret and apply in fixed income interest rate risk management. 4) Alternatives to effective duration and convexity that offer the same valuable risk management information, but in a much simpler, intuitive and usable form are Risk Duration, Reward Duration, and Duration Ratio. 5) Risk Duration and Duration Ratio are the two most powerful statistics available to today's fixed income portfolio and risk managers.Read More
Publication Year: 2007
Publication Date: 2007-01-01
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot