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. Interest Rate Risk

    The risk that an investment's value will change due to a change ...
  4. Empirical Duration

    The calculation of a bond's duration based on historical data. ...
  5. Effective Duration

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

    The weighted average term to maturity of the cash flows from ...
Related Articles
  1. The Advantages Of Bonds
    Investing

    The Advantages Of Bonds

  2. How Interest Rates Affect The U.S. Markets
    Options & Futures

    How Interest Rates Affect The U.S. Markets

  3. Use Duration And Convexity To Measure ...
    Bonds & Fixed Income

    Use Duration And Convexity To Measure ...

  4. Interest Rates And Your Bond Investments
    Investing Basics

    Interest Rates And Your Bond Investments

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center