Exponential Duration: A More Accurate Estimation Of Interest Rate Risk
AbstractWe develop a new method to estimate the interest rate risk of an asset. This method is based on modified duration and is always more accurate than traditional estimation with modified duration. The estimates by this method are close to estimates using traditional duration plus convexity when interest rates decrease. If interest rates rise, investors will suffer larger value declines than predicted by traditional duration plus convexity estimate. The new method avoids this undesirable value overestimation and provides an estimate slightly below the true value. For risk-averse investors, overestimation of value declines is more desirable and conservative. 2005 The Southern Finance Association and the Southwestern Finance Association.
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Bibliographic InfoArticle provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.
Volume (Year): 28 (2005)
Issue (Month): 3 ()
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- Zhongliang Tuo, 2013. "Hedging Against the Interest-rate Risk by Measuring the Yield-curve Movement," Papers 1312.6841, arXiv.org.
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