Saturday, May 1, 2010

Empirical Duration Model

  • reliant on historical prices (that might not be easily available)
  • does NOT rely on any theoretical valuation models

  • Advantage
    • Its calculation relies on few assumptions.
    • Required parameters are easy to estimate using regression analysis.
  • Disadvantage
    • The volatility of the spreads with reference to Treasuries can distort the price reaction to interest rate changes.

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