Can a bond have multiple effective durations? For example, the effective duration of a callable bond calculated when the call option is close to the money would be different from the effective duration calculated when the call option is far from the money.
So, it is possible for a bond to have multiple effective durations. Am I right? Can a straight bond have multiple effective durations as well? My guess is that it cannot.
I’m not certain what you mean by, “multiple effective durations”.
A bond has one effective duration: the percentage price change given a 1% change in its yield to maturity, allowing for the cash flows to change when the YTM changes.
The _ value _ of that one effective duration will depend on many factors, one of which is YTM. A callable bond will have a low effective duration at very low yields, a moderately high effective duration at moderate yields, and a low effective duration at very high yields. An option-free bond will have a high effective duration at very low yields, a moderately high effective duration at moderate yields, and a low effective duration at very high yields. But it’s only one effective duration . . . whose value depends on the YTM (amongst other things).
Apologies for the confusion. What you said makes perfect sense. I meant to ask whether different YTMs produce different effective duration measures, but what you said was super clear! Thank you!
My pleasure.