medium · Debt Capital Markets pricing-yields-curve
How does 'Key Rate Duration' differ from 'Effective Duration' when analyzing a bond portfolio?
- Key rate duration measures sensitivity to a change in yield at a specific maturity point, whereas effective duration assumes a parallel curve shift.
- Key rate duration is always higher than effective duration.
- Key rate duration accounts for credit spread volatility, while effective duration only covers interest rates.
- Effective duration is used for callable bonds, while key rate duration is only for option-free bonds.
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