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LOS 36.k: Describe the use of one-sided durations READING 36: VALUATION AND ANALYSIS: BONDS WITH EMBEDDED OPTIONS
and key rate durations to evaluate the interest rate
sensitivity of bonds with embedded options.
MODULE 36.6: KEY RATE DURATION
Key Rate (partial)
Duration (KRD)
Sensitivity of the value of a
bond (or portfolio) at a specific
maturity point along the entirety
of the yield curve to changes in
the spot rate (zero coupon or
treasury yield curve), holding
other spot rates constant.
• Measures the effect of a
nonparallel shift in the yield
curve on a bond portfolio.
• Measure the sensitivity in a
bond's price to a 1%
change in yield for a
specific maturity.
It is used to identify the interest rate risk from changes
in the shape of the yield curve (shaping risk).
Instead of shifting the entire benchmark yield
curve, only one specific par rate (key rate) is
shifted before the price impact is measured.
