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LiquidAssets10

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tT
发表于 2011-7-13 16:13 | 只看该作者

Duration - Fixed Income

shorter, higher, market, means, these
Can anyone explain these to me?

? Higher {lower} coupon means lower (higher) duration.
? Longer {shorter} maturity means higher (lower) duration.
? Higher (lower) market yield means lower (higher) duration.

 

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smartpants

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发表于 2011-7-13 16:13 | 只看该作者
"Sooner you recover the money, lesser you are at risk and hence lesser is the duration."

This statement will take care of all the three queries on Duration.

Higher Coupon ----> You'll recover money sooner ----> lesser Risk ---> less duration

Longer maturity ---> You'll get money later ----> higher Risk ---> higher duration

Higher Yield ---> You invested lesser money ---> You'll recover money sooner ----> Lower Risk ---> lower duration

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JRossSter

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3#
发表于 2011-7-13 16:13 | 只看该作者
Great explaination bhaiyyu!

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dontknow1987

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4#
发表于 2011-7-13 16:13 | 只看该作者
Makes sense but don't quite understand the last one:

Higher Yield ---> You invested lesser money ---> You'll recover money sooner ----> Lower Risk ---> lower duration

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leadcfa

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5#
发表于 2011-7-13 16:13 | 只看该作者
Looking at the price-yield curve, at higher yields bond price will be lower. So, as a buyer of that bond, you will be investing lesser money.

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nitoha

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6#
发表于 2011-7-13 16:13 | 只看该作者
? Higher {lower} coupon means lower (higher) duration.
- Meaning your income is higher and less reinvetment risk, lower interest rate risk.
? Longer {shorter} maturity means higher (lower) duration.
- higher reinvestment risk, higer interest rate risk.
? Higher (lower) market yield means lower (higher) duration.
- Meaning your income is higher and lower interest rate risk

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joemoran

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7#
发表于 2011-7-13 16:13 | 只看该作者
I think should be more reinvestment risk and less interest rate risk for higher coupon. As you recover money faster from higher coupon, you are subjected to less interest rate risk. But on the other hand, with more money now, you will face more reinvestment risk.

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amqata

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8#
发表于 2011-7-13 16:13 | 只看该作者
By the way, Schweser sample found at the Samples header above links to free notes for SS 14 (I think 14) but includes notes on duration.

This isn't clear to me but I accept it at, heh, face value:

Higher Coupon ----> You'll recover money sooner ----> lesser Risk ---> less duration

I merely think of the effect of having a relatively higher numerator in the bond price PV equation relative to yield. I'm quite sure how a higher coupon rate determines that one may recover their money sooner.

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