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KRD
Measure of interest rate risk (Key Rate Duration (Advantages (Can…
KRD
- Measure of interest rate risk
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Key Rate Duration
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Advantages
- Can identify price sensitivity of an option-embedded bond to each segment of the spot yield curve
- Recognize that yield curve movement is driven by multiple market factors (do not always move in a parallel fashion)
- Easy to use option-free bonds to create a replicating portfolio of a bond with embedded options
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KRD of a portfolio
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ratio of each KRD to avg. KRD
=> tells this portfolio is most sensitive to interest rate around which term
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