Abstract
Macaulay's duration, defined as the weighted average time to maturity of a bond's cash flows, has played a central role in bond immunization. 1 Closedform solutions for duration provide the user with a formula that eliminates the need to sum present values of weighted multiperiod cash flows.2 But the usefulness of a closed-form formula rests in part on the usefulness of duration itself in immunizing the value of a portfolio against interest rate changes. Macaulay's duration places severe restrictions on permitted interest rate behavior.3 If these restrictions are violated, an immunization scheme employing a Macaulay duration measure will not guarantee return performance over the time horizon. A number of higher-order measures of duration have been suggested to overcome these restrictions.4 This note provides closed-form solutions for higherorder duration measures, which are generalized to control for virtually any interest rate shift. The algorithm provided is generalized to include the closedform solution of Macaulay's duration. Furthermore, it is tractable and easily adaptable to spreadsheet applications.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
