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#1
03-27-2002, 08:42 AM
 Tim Hortons Member Join Date: Dec 2001 Posts: 101

In MIP, 8-34:
Why are we assuming in this chapter that maturity and duration are equal? Wouldn't that only be the case in a zero coupon bond? It's pretty confusing when they're talking about matching the duration to areas on the yield curve when it's actually the time to maturity we'd want to match in order to get that yield.
Aidez-moi, SVP!
#2
03-27-2002, 09:12 AM
 New at pd Member Join Date: Sep 2001 Posts: 560

I'm sorry -- I don't have the book with me --can I get a little background?
#3
03-27-2002, 09:19 AM
 chucky almendinger Member Join Date: Oct 2001 Posts: 119

My take:

I think they're just saying that if you wanted to lower your duration in a bearish scenario, you'd probably lower the maturity of the portfolio too. In graph (a) you would give up some yield due to the curve.

If you were bullish, and wanted to capitalize on this by increasing duration, you would expect an increase in maturity, unless you were doing something like playing with interest futures. But with the yield curve in (b), the duration increase would be offset by a decrease in expected yield. I guess if you're looking for capital gains YTM is less important.

Je n'ai pas lit tout le chapitre. Et je regrette que j'aie oublie parler francais.
#4
03-27-2002, 10:47 AM
 Tim Hortons Member Join Date: Dec 2001 Posts: 101

Quote:
 On 2002-03-27 09:19, chucky almendinger wrote: My take: I think they're just saying that if you wanted to lower your duration in a bearish scenario, you'd probably lower the maturity of the portfolio too. In graph (a) you would give up some yield due to the curve. If you were bullish, and wanted to capitalize on this by increasing duration, you would expect an increase in maturity, unless you were doing something like playing with interest futures. But with the yield curve in (b), the duration increase would be offset by a decrease in expected yield. I guess if you're looking for capital gains YTM is less important. Je n'ai pas lit tout le chapitre. Et je regrette que j'aie oublie parler francais.
Merci Beaucoup! I think I'm begining to see the big picture... I just hope it's the correct one.

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