Schweser says "If the manager duplicates the index PVD, the portfolio and
the index will have the same sensitivities to both shifts and twists in the yield curve." But the manager should also match the Duration itself, not just the PVD. Right?
PVD match is a stricter condition than duration match.
But PVD match only ensures the proportions of duration (duration contribution as a % and not the absolute values) in time periods. It doesnt require the aggregate duration values to be the same.
I think you are right.
The curriculum has a similar statement at the bottom of P16. It may assume that the duration has been matched.
you are doing this in the context of “enhanced indexing with primary risk factor matching”. First condition there is that duration of assets = duration of liabilities.
then you go on to the other ones … Primary risk factors
KRD
PVD of Cash Flows
Sector Quality Percent
Sector Duration Contribution
Quality Spread duration contribution
Sector/Maturity/Coupon cell weights… matching (instead of convexity matching) for Call Exposure
Issuer Selection matching
Ah… makes sense! Thanks CPK.
Any inputs on my doubt regarding dollar duration guys?
http://www.analystforum.com/forums/cfa-forums/cfa-level-iii-forum/91312842#comment-91343248