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DURATION MOMENTS AND YIELD CURVE MOVEMENTS
Author(s) -
Kornbluth J.S.H.,
Salkin G.R.
Publication year - 1994
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1994.tb00312.x
Subject(s) - duration (music) , yield curve , yield (engineering) , cash flow , econometrics , mathematics , value (mathematics) , order (exchange) , statistics , tilt (camera) , moment (physics) , economics , monetary economics , finance , interest rate , geometry , physics , classical mechanics , acoustics , thermodynamics
In this paper we will analyze the relationship between the value and duration moments of a cash flow and movements in the yield curve. We will show that for changes in the yield curve which can be related to t n , the 1st order changes in the net present value of a cash flow are linearly dependent on the n + lth duration moments, and that the 2nd order changes are dependent on the sum of duration moments of order 2 n + 1 and 2 n + 2. We will use this relationship to tilt tracking portfolios so as to protect them against specific changes in the yield curve.