Rabalancing a Portfolio using dollar duration


  1. calculate a new dollar duration for the portfolio _ after moving forward in time and shifting the yield curve _

  2. calculate the rebalancing ratio by dividing the original dollar duration by the new dollar duration and subtracting 1 to get a percentage change

  3. multiply the new market value of the portfolio by the desired percentage change from step two

Why do we need to move FORWARD ? I thought that we would use the ACTUAL yield curve to rebalance our actual portfolio duration to the old portfolio duration.

You use the actual data. I would say that “moving forward in time and shifting the yield curve” means moving forward relatively to the original data (so the past).

Would it have anything to do with the questions providing you forward data and asking you to solve it based on forward data too?

*just my guess at a simple answer

It’s just referring to use the DDnew values and not the DDold values. They will show you two tables: one with the original (old) values and DD and then one with the new.

You get the ratio DDold/DDnew and then multiply that to to the ‘new’ values to get the $ amount to buy or sell.

Well the “shifting the yield curve” part is confusing me.

well, '_ after moving forward in time and shifting the yield curve’ _ appear in the CFAI 2014 PM Mock, and this is confusing with no further elaboration in the main text.

I’m pretty certain these questions/concept is telling you how to rebalance your portfolio AFTER time has elapsed, and hence there are new durations in portfolio, etc. Questions will give you the new dollar durations, so now you need to calculate the rebalancing ratio to rebalance back to initial target duration (ie. figuring out how much cash you need as a % of new portfolio market value). It’s implicitly assumed time has elapsed, hence you must now rebalance back to target.



Has anybody learnt rebalancing portfolio method using only one security?

what is that…

That is…hacksaw.:slight_smile: