Skip to content
All library documents

How DV01 and Duration Scale with Bond Holdings

Article Quant Q&A · Author: user115285
Read the original

Summary

The document explains how a bond portfolio’s DV01 changes when the number of identical bonds increases. DV01 measures the dollar price change associated with a one basis point yield move, so the portfolio’s DV01 is the per-bond amount multiplied by the number of bonds held. In the example, a bond with DV01 of 0.05 held in a quantity of 1,000 produces a portfolio DV01 of 50 dollars.

The answer contrasts this dollar sensitivity with modified or effective duration. Duration is a proportional measure, so simply holding more of the same bond does not change the bond’s duration. The explanation is a compact unit and scaling clarification; it does not address aggregation across different bonds, yield curve sensitivities, or changes in risk as market conditions and holdings vary.

Key ideas

  • Portfolio DV01 scales in proportion to the number of identical bonds held.
  • A per-bond DV01 of 0.05 becomes 50 dollars for a holding of 1,000 bonds.
  • Modified or effective duration remains the same when the position size changes.
  • DV01 is a dollar sensitivity, while duration is a proportional measure.

Tags

Fixed incomeRisk managementPosition sizing
Full text
# Does DV01 grow proportionally to portfolio?


# Does DV01 grow proportionally to portfolio?












I'm having trouble understanding DV01 convention. From what I understand it stands for "Dollar value of 1 basis point."

For instance, if I have a bond with DV01 = 0.05, does a portfolio composed of 1,000 of this bond also have DV01 of 0.05? Or would it be proportionally larger, since a 1 basis point increase in this bond would result in a $50 loss for the portfolio?

## Answer by Helin (score 2)

https://quant.stackexchange.com/a/16501

If the bond's DV01 is 0.05, then the DV01 of 1000 of this bond will be $0.05\times 1000 = 50$. By contrast, if the modified or effective duration of the bond is 0.05, then the modified duration of 1000 of this bond is still 0.05.

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.