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Duration & Dimension

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  • Winfried G. Hallerbach

    (Erasmus University Rotterdam)

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.

Suggested Citation

  • Winfried G. Hallerbach, 1999. "Duration & Dimension," Tinbergen Institute Discussion Papers 99-047/2, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:19990047
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