what is the dollar duration
the dollar duration measures the dollar change in a bond s value to a change in the market interest rate the dollar duration is used by professional bond fund managers as a way of approximating the portfolio s interest rate risk dollar duration is one of several different measurements of bond s duration as duration measures quantify the sensitivity of a bond s price to interest rate changes dollar duration seeks to report these changes as an actual dollar amount basics of dollar durationdollar duration sometimes called money duration or dv01 is based on a linear approximation of how a bond s value will change in response to changes in interest rates the actual relationship between a bond s value and interest rates is not linear therefore dollar duration is an imperfect measure of interest rate sensitivity and it will only provide an accurate calculation for small changes in interest rates mathematically the dollar duration measures the change in the value of a bond portfolio for every 100 basis point change in interest rates dollar duration is often referred to formally as dv01 i e dollar value per 01 remember 0 01 is equivalent to 1 percent which is often denoted as 100 basis points bps to calculate the dollar duration of a bond you need to know its duration the current interest rate and the change in interest rates 