key rate duration portfolio terminology

CFA Level II
#1

let’s say key rate of 3 months, the respective key rates durations are Bond A .03 Bond B .02 Bond C .07 sum =.12 what is the sum of the key rate durations of each individual security called?

#2

Not done FI since ages - but does that sum of 0.12 = effective duration?

#3

ED is the sum of the key rate durations for an individual issue…

#4

that’s correct. just to add on, we can use the ED if there is a parallel shift in the yield curve, else we need to use the individual key rates.

#5

let me clarify using this pic. http://pic18.picturetrail.com:80/VOL894/4332674/9130502/360722643.jpg as u can see, the ED of each security is vertically listed on the far right column. what is the value in red?

#6

ok this is my guess, but looking at the image i interpret this the .0265 shows the key rate for the portfolio while the 11.4 shows the ED for the bond. the definition for key rate is as follows “A key rate duration is defined as the approx percentage change in the value of a bond or bond portfolio in response to a 100 basis point change in the corresponding key rate, HOLDING ALL OTHER RATES CONSTATNT”

#7

thanks. Portfolio KRD for that key rate = bottom row ED of that issue = far right column ED Portfolio = sum of the Portfolio KRDs OR sum of ED of each issue

#8

whoops. the bottom row is the weighted sum of the KRD of that maturity. there is no name for it.