November 2011
Beginner
335 pages
9h 33m
English
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Dollar Value of Basis Point and Modified Duration
The CME factors DV01, dollar Value of a Basis point, as the average absolute price changes of Treasury securities to a 1 basis point increase and decrease in yield to maturity by:
((change in absolute value with 1 bp) + (change in absolute value with 1 bp))/2
The idea is that it captures the bond/yield inverse within small increments by when interest rates rise, bond price falls and vice versa. The purpose of DV01 is to hedge, but it may serve for small currency price moves. It locks one bond price against one small yield. The caveat is DV01 is not fixed, it can move as bonds and yields move.
Modified duration is a weighted average maturity of Treasury security cash flows. As yields fall, modified ...
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