Cash flow duration and Empirical duration

Cash flow duration and Empirical duration

		Cash flow duration	Empirical duration
Feature		Similar to effective duration.
Advantage			It does NOT rely on any theoretical formulas (theoretical valuation models)
Weakness		It fails to fully account for changes in prepayment rates as cash flow yields change. (Cash flow duration assumes that one prepayment rate will apply over the life of an MBS for whatever change in interest rates is assumed.)	Reliance on historical pricing data that may not exist for many mortgage-backed securities. (The values are based on historical pricing relationships.)