Can anyone please explain differences between DV01, PV01, MacD, and ModD in an easy to understand way?
Hi!
here’s my understanding. Macaulay duration is linked to the bond maturity and represent a weighted average of periods until you get your money back. So, for instance, a 3 y bond might have a duration of 2.88 years, which you can say means that it takes on average 2.88 years to get your money back.
Modified D uses Mac D in its computation and represents a % chance in bond price for a % change in yield, BUT only if the yield shift is small (less than + or - 1%) and the shift is parallel. The interpretation can something like that: for every 0.5% parallel change in th yield curve, the price of the bond will change 1.75%.
DV01 is the same as dollar duration but expressed in cents (so divided by 100) an example is “for every 0.5 % change in the yield curve, the bond price will change 360 cents”.