Curve-Based & Empirical Fixed-Income Risk Measures Flashcards
What is “effective duration”?
The sensitivity of a bond’s price to an instantaneous parallel shift in a benchmark yield curve.
What is “Effective Convexity”?
an interest-rate risk statistic that measures the non-linear/second-order effects of changes in benchmark yield curve on a bond’s price.
What is “key rate duration”?
A method of measuring interest-rate sensitivities of a fixed-income instrument or portfolio to shift in key points along the yield curve.
What is “analytical duration”?
Estimates of duration using mathematical formulas.
Estimates of impact of yield changes on bond prices using analytical duration implicitly assume that benchmark yields and spreads are independent variables and are uncorrelated.
What is “empirical duration”?
Estimates of duration calculated over time and in different interest rate environments.
Unlike analytical duration, “empirical duration” estimates do not assume that benchmark yields and spreads are independent variables and uncorrelated.
