Dollar Duration -- is there a Macaulay and Modified version of this also?
- Thread starter sridhar
- Start date
Hi sridhar,
(I know what you mean by DV01 is same as dollar duration, but just to clarify DV01 is dollar duration scaled from 1 unit to 1 basis point or 1/10,000th of a unit where the unit is 100% or 1.0)
To my knowledge, no, there is no such distinction:
1. dollar duration (DD), aka value duration, is by definition already a Modified dollar duration; i.e., DD = -dP/dy, the slope of the tangent line to the P/y curve, and therefore given in dollars
2. Unlike Mac versus Mod duration where the difference has some utility (time^2 versus sensitivity), I am not sure what the use would be of a Macaulay dollar duration. It can be computed, of course, but ...
... the (modified) dollar duration is supremely useful: it's the only (best?) way to treat multiple bonds (hedge, combine), but i don't know why you would want/need a "mac" DD. I could be unawares
glad FRM-BT actually finds some use in practice! David
(I know what you mean by DV01 is same as dollar duration, but just to clarify DV01 is dollar duration scaled from 1 unit to 1 basis point or 1/10,000th of a unit where the unit is 100% or 1.0)
To my knowledge, no, there is no such distinction:
1. dollar duration (DD), aka value duration, is by definition already a Modified dollar duration; i.e., DD = -dP/dy, the slope of the tangent line to the P/y curve, and therefore given in dollars
2. Unlike Mac versus Mod duration where the difference has some utility (time^2 versus sensitivity), I am not sure what the use would be of a Macaulay dollar duration. It can be computed, of course, but ...
... the (modified) dollar duration is supremely useful: it's the only (best?) way to treat multiple bonds (hedge, combine), but i don't know why you would want/need a "mac" DD. I could be unawares
glad FRM-BT actually finds some use in practice! David
Hi Matt, dollar duration is the actual 1st derivative (slope of the tangent) = dP/dy. As modified duration = dP/dy*-1/P, dollar duration = -Price*(Modified duration).
But you are correct that mod duration (like mac duration) in expressed in units of time (years).
But you are correct that mod duration (like mac duration) in expressed in units of time (years).
- See this for some detail http://forum.bionicturtle.com/threa...all-three-durations-lets-settle-this-now.6012
- And Pitechz had to explain to me why modified duration technically has units in years (like Mac) two years ago, see here http://forum.bionicturtle.com/threads/l2-t5-25-duration.3447/ (i previously assumed, like many texts, that only mac duration had units in years), thanks,
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