Duration & Dimension

Winfried Hallerbach

No 99-047/2, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: In fixed income analysis, duration plays a central role as a proxy for interestrate risk exposure. Althoughthis role relies on the interpretation of duration as (minus) theyield elasticity of the bond price, duration ismeasured as a bond's present value weighted average time to maturity andexpressed in terms of years. Hence duration is regarded as an elasticity with a time dimension. Inthis note we resolve this apparentduration paradox and show that duration is a pure number.

Date: 1999-06-24
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