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. 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

Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  3. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  4. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  5. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  6. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
Trading Center