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Duration Moments And Yield Curve Movements

Author

Listed:
  • J.S.H. Kornbluth
  • G.R. Salkin

Abstract

In this paper we will analyze the relationship between the value and duration moments of a cash flow and movements in the yield curve. We will show that for changes in the yield curve which can be related to tn, the 1st order changes in the net present value of a cash flow are linearly dependent on the n+ lth duration moments, and that the 2nd order changes are dependent on the sum of duration moments of order 2n+ 1 and 2n+ 2. We will use this relationship to tilt tracking portfolios so as to protect them against specific changes in the yield curve.

Suggested Citation

  • J.S.H. Kornbluth & G.R. Salkin, 1994. "Duration Moments And Yield Curve Movements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 21(2), pages 175-193, March.
    • Handle: RePEc:bla:jbfnac:v:21:y:1994:i:2:p:175-193
    DOI: 10.1111/j.1468-5957.1994.tb00312.x
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    References listed on IDEAS

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    1. Chambers, Donald R. & Carleton, Willard T. & McEnally, Richard W., 1988. "Immunizing Default-Free Bond Portfolios with a Duration Vector," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(1), pages 89-104, March.
    2. Shea, Gary S, 1985. "Interest Rate Term Structure Estimation with Exponential Splines: A Note," Journal of Finance, American Finance Association, vol. 40(1), pages 319-325, March.
    3. Vasicek, Oldrich A & Fong, H Gifford, 1982. "Term Structure Modeling Using Exponential Splines," Journal of Finance, American Finance Association, vol. 37(2), pages 339-348, May.
    4. G. O. Bierwag & Gordon S. Roberts, 1990. "Single‐Factor Duration Models: Canadian Tests," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 13(1), pages 23-38, March.
    5. Hopewell, Michael H & Kaufman, George G, 1973. "Bond Price Volatility and Term to Maturity: A Generalized Respecification," American Economic Review, American Economic Association, vol. 63(4), pages 749-753, September.
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