Properties of duration drift

Juho Kanniainen and Keijo Ruohonen

International Journal of Economics and Business Research, 2011, vol. 3, issue 2, 176-191

Abstract: Duration requires active monitoring because it is sensitive to the yield, resulting in duration drift. Duration drift determines the portfolio's exposure to rate changes, and hence it can be used as a measure of immunisation risk. However, research has barely focused on the properties of duration drift. This study demonstrates how the structure of cash flows affects duration and its drift, how duration drift itself responds to a change in the yield and what conditions affect the stability or reactivity of duration. With these results, we discuss the conditions under which the immunisation strategy must be guarded against reactive duration and high immunisation risk.

Keywords: duration drift; immunisation risk; risk management; yield sensitivity; portfolio exposure; rate changes; cash flows; yield changes; duration stability; duration reactivity; reactive duration; economics; business research. (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijecbr:v:3:y:2011:i:2:p:176-191

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