What are the advantages of key rate duration over PVD of cash flows? I just read the section in Schweser and understand that both help with twists in the yield curve, but it says that if you want the portfolio to have the same sensitivities to both twists and parallel shifts in the yield curve you should use PVD. So in what cases would you want to use key rate duration?
Well I think the disadvantage of PVD of cash flows is that there is a higher cost to implement this type of hedge from the outset. The advantage would be that it is more of a set it and forget it type of hedge. If a manager were constrained by the initial costs to set up the hedge and has the ability to monitor the positions on a regular basis, I would think key rate duration would be more attractive.
bpdulog Wrote: ------------------------------------------------------- > Well I think the disadvantage of PVD of cash flows > is that there is a higher cost to implement this > type of hedge from the outset. The advantage > would be that it is more of a set it and forget it > type of hedge. If a manager were constrained by > the initial costs to set up the hedge and has the > ability to monitor the positions on a regular > basis, I would think key rate duration would be > more attractive. I am sorry but where do you get this from? Is this mentioned anywhere in CFAI text?