July 2011
Beginner
288 pages
7h 22m
English
Content preview from BOND MATH: The Theory Behind the FormulasBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
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Curve Duration and Convexity
A number of versions of duration have been introduced since Macaulay first wrote down a formula for the statistic in the 1930s. I always wonder: Does this mean he invented it or discovered it? Anyway, another version that I'll call spot duration sometimes is used in academic fixed-income research.
This looks much like the weighted-average formula for Macaulay duration in equation 6.14. The difference is that instead of discounting the cash flows with the yield to maturity, the sequence of spot, or zero-coupon, rates (z1, z2, … , zN) is used. The price of the bond in the denominator is the same as in equation 6.14
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