Fixed vs. Floating Duration higher, having

willsucceed

Why does having Fixed cash flows have a higher duration than Floating ?

former

Floating duration is based upon the tenor of the floating leg..eg 3 m libor duration is 0.25

nannan66

because floating rates reset often, thus they have a shorter duration

bpdulog

There is some kind of flaw in this argument , that I can't pinpoint.

Are rates going to zero after the swap reset . Won't the floating rate reset to some reasonable rate after the reset? The calculation pretends that the floater has no obligation after the reset.

bboo

Duration measures the linear interest rate sensitivity of interest rate sensitive instruments. For floating rate instruments, as you are not locked in fixed interest rate, your interest rate risk is limited only to next coupon reset date, so is duration.

mik82

Thanks. I love CFA.

thommo77

cfalover Wrote:
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> So which has a higher duration....Pay
> fixed/receive floating or....Receive Fixed/pay
> floating?


u tell me mr lover lover ..............in the first ur short duration .........you gave away the larger duration to receive the smaller duration..................


vice versa for the second