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Duration Analysis In South Africa: The Search For Superior Measures

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  • Gary Van Vuuren
  • Paul Styger

Abstract

The Macaulay duration is a highly successful tool for measuring and managing interest rate risk. However, it employs restrictive assumptions which constrain its usefulness in a rapidly evolving market. The Basel II implementation and ongoing accounting standard reassessments highlight the requirement for accurate, robust risk measures. Contemporary research has focused on augmenting the existing duration definition. We extend this work by relaxing some input assumptions, describing a different duration measure and applying it to interest rate driven price changes and examining the influence on the duration gap. The economic market value of equity (an important metric for regulators and risk management) is significantly improved.

Suggested Citation

  • Gary Van Vuuren & Paul Styger, 2006. "Duration Analysis In South Africa: The Search For Superior Measures," South African Journal of Economics, Economic Society of South Africa, vol. 74(2), pages 266-293, June.
    • Handle: RePEc:bla:sajeco:v:74:y:2006:i:2:p:266-293
    DOI: 10.1111/j.1813-6982.2006.00074.x
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