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:
“At the last, tenderly,
From the walls of the powerful fortress’d house,
From the clasp of the knitted locks, from the keep of the well-closed doors,
Let me be wafted.
Let me glide noiselessly forth;
With the key of softness unlock the locks—with a whisper,
Set ope the doors O soul.”
—Walt Whitman (1819–1892)
“Unless a group of workers know their work is under surveillance, that they are being rated as fairly as human beings, with the fallibility that goes with human judgment, can rate them, and that at least an attempt is made to measure their worth to an organization in relative terms, they are likely to sink back on length of service as the sole reason for retention and promotion.”
—Mary Barnett Gilson (1877–?)
“Higher than the question of our duration is the question of our deserving. Immortality will come to such as are fit for it, and he would be a great soul in future must be a great soul now.”
—Ralph Waldo Emerson (1803–1882)