Interest Rate Sensitivities of Bond Risk Measures

32 Pages Posted: 2 Feb 2009

See all articles by Timothy Falcon Crack

Timothy Falcon Crack

University of Otago - Department of Accountancy and Finance

Sanjay K. Nawalkha

University of Massachusetts Amherst - Isenberg School of Management

Date Written: September 26, 1999

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 Classification: G11, G12

Suggested Citation

Crack, Timothy Falcon and Nawalkha, Sanjay K., Interest Rate Sensitivities of Bond Risk Measures (September 26, 1999). Financial Analysts Journal, Vol. 56, No. 1, 2000, Available at SSRN: https://ssrn.com/abstract=1336261

Timothy Falcon Crack

University of Otago - Department of Accountancy and Finance ( email )

Dunedin
New Zealand

Sanjay K. Nawalkha (Contact Author)

University of Massachusetts Amherst - Isenberg School of Management ( email )

Amherst, MA 01003-4910
United States
413-687-2561 (Phone)

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