Is dollar duration independent of the anticipated change in interest rates? I think it is according to the readings, but one of the questions in the schweser practice exams has me wondering what I’m missing. Test #3, pm 15.1.
Thanks.
No. Usually the change is given in the problem. If it is not, i would assume a 100bp/1% change:
DD = - effective duration * change in rates (in decimal form) * portfolio/position value
Dollar duration doesn’t depend on how much you’re expecting interest rates to change, but the actual dollar change after a rate change is. What I mean is that dollar duration is a first-order approximation of the change in value, based on the slope of the price-interest rate curve at the current interest rate. That slope doesn’t really change depending on how far you expect interest rates to move, but the degree to which the slope correctly approximates the dollar change you actually get does depend on how far they move.
If you want to find the actual dollar change, you’d take the dollar duration and then need to do some adjustment to account for convexity.
i am not sure then. i thought that since they wanted to hedge an 80bps then you would calculate the dollar duration based off of the 80 bps onle. maybe i am wrong, then.
anyone esle have input into this
发表于 2013-4-9 22:41
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