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General Definition of Duration
Is there a general definition of Macaulay duration / Modified Duration that applies to any fixed income instrument?Usual definitions refer to bond or bond futures, but portfolio managers also seem to refer to Duration and Contribution to Duration of Swaps, Futures, Bond options, swaptions...
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- Martinghoul
- Posts: 188
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General Definition of Duration
I think it's just mild misuse of the term "duration"...
General Definition of Duration
The most general use of the term duration would be the % change in price for a 100bp move in interest rates, where the sign is positive if the price moves opposite the direction of interest rates and negative if the price moves the same direction as interest rates.This is basically "effective duration" where one accounts for possible changes in asset cash flows as a result of interest rate moves.
General Definition of Duration
Duration is misnomer of first derivative of price wrt to yield in some sense. Most likely because of the Mac duration which is the aforementioned weighted by time.Now worry about the second derivative of price to yield!Bumping the curve is duration derived numerically.Alk
General Definition of Duration
wrt the swap, think of the two halves separately and calculate the duration of both sides
General Definition of Duration
Note that a forward starting FRN, paying Libor flat, has 0 duration (its price it's the face value, don't matter the changes in the yield curve).