DEFINITION of 'Empirical Duration'
The calculation of a bond's duration based on historical data. Empirical duration is estimated statistically using historical marketbased bond prices and historical marketbased Treasury yields. When the historical yields change, the historical bond prices will change accordingly, which forms that basis for empirical duration. Regression analysis is the statistical process used to estimate empirical duration.
Duration is the percentage change in a bond's price with a 100basispoint change in yield.
BREAKING DOWN 'Empirical Duration'
The calculation of empirical duration has some advantages and disadvantages over other duration calculations, such as effective duration or modified duration. The advantages of using empirical duration include that the estimate does not rely on theoretical formulas and analytic assumptions, and the only inputs needed are a reliable series of bond prices and a reliable series of Treasury yields.
Some disadvantages are that a reliable series of a bond's price may not be available, and the series of prices that is available might not be market based, but rather modeled or matrix priced (the price is based on a similar security).

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Interest Rate Sensitivity
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Duration
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Financial Advisor
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Markets
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Investing
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Markets
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ETFs & Mutual Funds
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Investing
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Managing Wealth
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Investing
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ETFs & Mutual Funds
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Which is a better metric, modified duration or Macaulay duration?
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