What is the 'Dollar Duration'
The dollar duration measures the dollar change in a bond's value to a change in the market interest rate. The dollar duration is used by professional bond fund managers as a way of approximating the portfolio's interest rate risk. Dollar duration is one of the several different measurements of bond duration.
As duration measures the sensitivity of a bonds price in interest rate changes, dollar duration seeks to give these changes an actual dollar amount.
BREAKING DOWN '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.
Mathematically, the dollar duration measures the change in the value of a bond portfolio for every 100 basis point change in interest rates. Dollar duration is often referred to as DV01 (dollar value per 01). Remember 0.01 being 1 percent which is 100 basis points. To calculate the dollar duration of a bond you need to know its duration, the current interest rate and the change in interest rates.
Dollar Duration = DUR x (∆ i/1+ i) x P
While dollar duration refers to an individual bond price, the sum of the weighted bond dollar durations in a portfolio is the portfolio dollar duration. Dollar duration can be applied to other fixed income products such as forwards, par rates, zero coupon bonds and many more.
Limitations
Dollar duration has its limitations. Firstly, because it is a negative sloping linear line and it assumes the yield curve moves in parallels the result is only an approximation. However, if you have a large bond portfolio, the approximation becomes less of a limitation. Another limitation is that the dollar duration calculation assumes the bond has fixed rates with fixed interval payments.
Comparisons
Dollar duration differs from Macaulay duration and modified duration in that modified duration is a price sensitivity measure of the yield change, meaning it is a good measure of volatility and Macaulay duration uses the coupon rate and size plus the yield to maturity to assess the sensitivity of a bond.

Key Rate Duration
Key rate duration is a measure of the sensitivity of a security ... 
Effective Duration
Effective duration is a calculation for bonds with embedded options ... 
Rate Anticipation Swap
A rate anticipation swap is type of swap in which bonds are exchanged ... 
Convexity Adjustment
A convexity adjustment is the change required to be made to a ... 
Bond
A bond is a fixed income investment in which an investor loans ... 
Sensitivity
Sensitivity is the magnitude of a financial instrument's reaction ...

Financial Advisor
Why Bondholders Should Manage Duration Risk
Bonds and bond funds are fixedincome investments, but their duration, combined with changes to interest rates, can lead to price fluctuations. 
Investing
The Basics Of Bond Duration
Duration tells investors the length of time it will take a bond's cash flows to repay the investor the price he or she paid for the bond. A bond's duration is stated as a number of years and ... 
Financial Advisor
The Effect of Fed Fund Rate Hikes on Your Bond Portfolio
The extent to which a fed funds rate hike impacts a bond portfolio depends on the portfolio’s duration and its place along the yield curve. 
Investing
The Time For Short Duration Bonds Is Now
While the specter of rising interest rates have been haunting the markets for years now, it seems that fear is finally coming true. Given that scenario, the time for bond investors to get short ... 
Financial Advisor
How Rising Rates Impact Bond Mutual Funds
The interest rate increase by the Fed was one of the most widely anticipated in history. Here's what it means for bond mutual funds. 
Investing
Investing in Bonds: 5 Mistakes to Avoid in Today's Market
Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market. 
Insights
5 Things To Do Before Interest Rates Go Up
It is inevitable that interest rates will go up, but what should investors do to prepare themselves? 
Investing
The Top 5 Bond Mutual Funds for 2016
Learn about bond mutual funds that investors may want to consider for 2016. Understand why the risk of rising interest rates is a concern heading into 2016.

What are the different types of college savings accounts?
Find out more about the Macaulay duration and zerocoupon bonds and how to calculate the Macaulay duration of a zerocoupon ... Read Answer >>