Interest Rate Sensitivities of Bond Risk Measures
32 Pages Posted: 2 Feb 2009
Date Written: September 26, 1999
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: Suggested Citation