Choosing Par or Spot Curves for Key Rate Duration

Summary

The document explains that key rate durations can be calculated by shifting either a par yield curve or a spot, also called zero-coupon, curve. It treats both approaches as valid, so the choice is not presented as a question of one method being mathematically correct and the other incorrect.

The stated practical reason for favoring the par curve is that it is directly observable. The document also notes that major bond benchmark providers publish durations and key rate durations based on par curves. It offers no derivation, numerical comparison, or discussion of how curve choice affects interpretation, so it serves as a concise explanation of convention rather than a full treatment of fixed-income risk measurement.

Key ideas

• Key rate duration can be measured using either par-curve or spot-curve shifts.
• The document considers both curve choices valid.
• Par curves are often preferred because they are directly observable.
• Some major bond benchmarks publish key rate durations based on par curves.

Tags

# Why are KRDs calculated by shifting the par curve?


# Why are KRDs calculated by shifting the par curve?












When we compute Key Rate Duration, why is the par curve the right curve to shift instead of the spot curve?

## Answer by Bond wiz (score 3)

https://quant.stackexchange.com/a/45428

KRDs can be calculated by shifting either the par or the spot (zero coupon) curve and many vendor systems will provide both out of the box. Both approaches are “correct”.

Typically the par curve is favored since this is directly observable, but again this is a matter of preference. Major benchmarks (Bloomberg Barclays, FTSE/Citi) publish only par curve durations and KRDs.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.