liangfeng

You are estimating the duration on both fixed and floating legs..

Floating usually has a very short maturity (3 months, 6 months..) Hence, to estimate the average duration, CFAI suggests to take the duration of semiannual payments (0.5) and divide it by two.. which is why your floating leg has a formula (1/number of payments a year)/2

Now for the fixed side. CFAI simply suggest to take 75% of the maturity of the fixed bond. In this case, it says 2 years. So the duration of the fixed leg would be 2 years *75%.

And if you are paying floating and receiving fixed, your net duration will be

75%*2 - 1/4



Edited 1 time(s). Last edit at Tuesday, June 1, 2010 at 10:49PM by kurmanal.