Bond Duration - Dollar Duration, DV01

Dollar Duration, DV01

The dollar duration or DV01 is defined as the derivative of the value with respect to yield:

so that it is the product of the modified duration and the price (value):

($ per 1 percentage point change in yield)

or

($ per 1 basis point change in yield)

The DV01 is analogous to the delta in derivative pricing (The Greeks) – it is the ratio of a price change in output (dollars) to unit change in input (a basis point of yield). Dollar duration or DV01 is the change in price in dollars, not in percentage. It gives the dollar variation in a bond's value per unit change in the yield. It is often measured per 1 basis point - DV01 is short for "dollar value of an 01" (or 1 basis point). The names BPV (basis point value) or PV01 (present value of an 01) are also used, although PV01 more accurately refers to the value of a one dollar or one basis point annuity. (For a par bond and a flat yield curve the DV01, derivative of price w.r.t. yield, and PV01, value of a one-dollar annuity, will actually have the same value.)

DV01 or dollar duration can be used for instruments with zero up-front value such as interest rate swaps where percentage changes and modified duration are less useful.