duration is good measure while estimating


Duration is good measure while estimating the percentage price change for a small change in interest rates but the estimation becomes inferior with the larger change in interest rate. Therefore, duration is only a good approximation of the percentage price change for small changes in yield. The reason for this is, duration is a first approximation for a small change in yield. By using a second approximation it can be improved. This approximation is known as a convexity. We can use convexity measure of the security to approximate the change in price that is not explained by duration.        

Request for Solution File

Ask an Expert for Answer!!
Financial Management: duration is good measure while estimating
Reference No:- TGS0159336

Expected delivery within 24 Hours