Duration and Convexity of Mortgages in the Context of Real Estate Investment Analysis

Frank Handforth

Journal of Real Estate Portfolio Management, 2004, vol. 10, issue 3, 187-202

Abstract: Executive Summary. A property sale is typically recorded using the contract mortgage loan amount, rather than the estimated market value of the mortgage. This can distort the economic sale price. Modified duration is approached as a measure of the sensitivity of the value of a mortgage to changes in yield. The relationships between modified duration and Macaulay duration and between modified duration and convexity measure are examined. These concepts are extended to mortgage portfolios. Practical examples of duration and convexity calculations and applications are also explored.

Date: 2004
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DOI: 10.1080/10835547.2004.12089702

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