Dollar Duration

AAA

DEFINITION of 'Dollar Duration'

Dollar duration measures the dollar change in a bond's value to a change in the market interest rate. The dollar duration is generally used by professional bond fund managers as a way of approximating the portfolio's interest rate risk. Dollar duration is one of several different measurements of bond duration.

INVESTOPEDIA EXPLAINS 'Dollar Duration'

Dollar duration is based on a linear approximation of how a bond's value will change in response to changes in interest rates. The actual relationship between a bond's value and interest rates is not linear. Therefore, dollar duration is an imperfect measure of interest rate sensitivity, and it will only provide an accurate calculation for small changes in interest rates.

RELATED TERMS
  1. Bond Valuation

    A technique for determining the fair value of a particular bond. ...
  2. Convexity

    A measure of the curvature in the relationship between bond prices ...
  3. Effective Duration

    A duration calculation for bonds with embedded options. Effective ...
  4. Macaulay Duration

    The weighted average term to maturity of the cash flows from ...
  5. Duration

    A measure of the sensitivity of the price (the value of principal) ...
  6. Modified Duration

    A formula that expresses the measurable change in the value of ...
Related Articles
  1. Investing

    The Advantages Of Bonds

    Bonds contribute an element of stability to almost any portfolio and offer a safe and conservative investment.
  2. Options & Futures

    How Interest Rates Affect The U.S. Markets

    Interest rates can have both positive and negative effects on U.S. stocks, bonds and inflation.
  3. Bonds & Fixed Income

    Use Duration And Convexity To Measure Bond Risk

    Find out how this measure can help fixed-income investors manage their portfolios.
  4. Investing Basics

    Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  5. Options & Futures

    Immunization Inoculates Against Interest Rate Risk

    Big-money investors can hedge against bond portfolio losses caused by rate fluctuations.
  6. Professionals

    How do companies measure labor supply in human resources planning?

    Find out how and why a company's human resources department would measure labor supply, and what policies would address a shortage or surplus.
  7. Fundamental Analysis

    Why are OTC (over-the-counter) transactions controversial?

    Learn more about over-the-counter transactions, and why OTC traders are considered riskier than traders working with larger market exchanges.
  8. Fundamental Analysis

    What is the difference between cost of equity and cost of capital?

    Read about some of the differences between a company's cost of equity and its cost of capital, two measures of its required returns on raised capital.
  9. Fundamental Analysis

    What is arbitrage pricing theory?

    Find out what arbitrage pricing theory is and how it can theoretically be used by investors to generate risk-free profit opportunities.
  10. Fundamental Analysis

    What does a high weighted average cost of capital (WACC) signify?

    Find out what it means for a company to have a relatively high weighted average cost of capital, or WACC, and why this is important to lenders and investors.

You May Also Like

Hot Definitions
  1. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  2. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  3. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  4. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  5. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  6. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
Trading Center