Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
9731507 | The Quarterly Review of Economics and Finance | 2005 | 23 Pages |
Abstract
In fixed income analysis it is known that the various measures of interest rate sensitivity (duration) yield approximate results. Even with the addition of concepts like convexity, the results remain approximations. This paper summarizes a new approach based on the fact that the time value of money equation is a polynomial, and a polynomial has more than one root. The result of taking the multiple roots into account is a solution to the problem of inaccuracy. A new equation for duration is given that provides precise results. The paper contains a summary of previous work, describes the computational issues presented by the new approach, and suggests ways to deal with them.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Michael J. Osborne,