Dollar duration is a traditional term in the bond literature;the concept applies to portfolios denominated in any currency. A related concept is the price value of a basis point (PVBP), also known as the dollar value of a basis point (DV01). The PVBP is equal to the dollar duration divided by 100.
This PVBP is somewhat confusing, i have a similar problem if anyone can help.
As per my understanding
Money Duration = Modified duration x Market value of the bond Money Duration = PVBP x 100
Now coming to Reading 23 Example 4 to calculate the MV of the portfolio the curriculum divides the Money Duration by PVBP instead of dividing it by Modified Duration according to the equation (Money Duration = Modified duration x Market value of the bond).
Can anyone please help me out with this Example 4. thanks
Same confusion here. PVBP is a dollar amount and Portfolio amount also a dollar amount, how can they multiply? Any insights guys? I don’t want to memorize formula without understanding the logic behind. Thanks
I think the confusion comes from the “partial PVBP” which is not clear. We have either partial duration=KRD, or PVBP, but not combination.
if the author was referring to KRD in “partial PVBP” in the example, as key rate curve shift is mentioned on the side, we shall use 0.183 for the calculation. Just my thought.
Reasonable analysis. Could you interpret the predicted change in value formulae as to why curve shift need to divided by 100? (As shown in EOC question), which applies to the table in page 184?
The formula to predict the market change: multiply partial PVBP x portfolio par amount x ((curve shift in bps so for instance 1%=100 bps)/(100))
I am a bit confused with the answer they give for pro forma portfolio 2. Why would we not select the bullet pro forma portfolio 1? Surely it would benefit from a steepening yield curve and it has the highest PVBP for the 5-year and 10-year bonds? Could anyone help? Thank you