Key Rate Duration
Key rate duration measures portfolio sensitivity or bond's price sensitivity to independent shifts along the yield curve at selected “key” points (The 13 key points are usually defined as '1M', '3M', '6M', '1Y', '2Y', '3Y', '5Y', '7Y', '10Y', '15Y', '20Y', '25Y', '30Y'). Key rate duration is calculated value in relation to a 1% change in yield for a given maturity. Duration is the value of a 1% change (100 basis points) in yield for a given maturity. Key Rate Duration calculates the price response separately for a 1% change in each zero-coupon rate used to calculate the PV of the bond. Gives a better picture of which parts of the term-structure is responsible for how much of total interest rate risk. The key rate durations can then be summed up to give an overall interest rate risk measure, comparable with modified duration. Key rate duration is quoted as a percentage or in basis points.
Read more about this topic: Bond Duration
Famous quotes containing the words key, rate and/or duration:
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