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Interest Rate Sensitivities of Bond Risk Measures
Timothy Falcon Crack University of Otago - Department of Finance and Quantitative Analysis Sanjay Nawalkha University of Massachusetts at Amherst - Eugene M. Isenberg School of Management Financial Analysts Journal, Vol. 56, No. 1, 2000 Abstract: We derive a simple expression for the sensitivity of duration, convexity, and higher-order bond risk measures to changes in term structure shape parameters. Our analysis enables fixed income portfolio managers to capture the combined effects of term structure level, slope, and curvature shifts on any specific bond risk measure. These results are particularly important in volatile interest rate environments. We provide simple numerical examples.
Keywords: bond risk measures, duration, convexity, term structure, M-square JEL Classifications: G11, G12 Accepted Paper SeriesDate posted: February 02, 2009 ; Last revised: February 02, 2009Suggested CitationContact Information
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