another FI discovery

[pepp]

Zero coupon duration is same as it's maturity!!! bet you didn't know that!!

 

[Hank0414x]

Thanks, did not know that.

 

[daj224]

thanks. 3 types of duration.

tip: convexity adjusts for the linearity inherent in modified duration

 

[th123]

remaining maturity?

 

[mcf]

Pepp... what about the duration on a floating rate bond.. how's that work?

 

[pepp]

can't even remember where I read it and not even sure if its true anymore.

 

[ryanwtyler]

duration = weighted average time to get all your cash flows.

with a 0 you only get one cash flow and its at maturity.

this concept of duration will help you determine relative durations like high coupons have low duration. bonds with longer maturity have higher duration all things equal, etc.

 

[MT327]

Well remember that one definition of duration in the avg weighted time of cash flows. Since zero coupons only have one payoff at maturity it makes sense that duration = maturity.

As far as floating rate bonds, I think the duration will vary but will always be close to zero because it will always reset to par at the reset date all else being equal

 

[mcf]

Rather than be close to zero, I believe it tracks closer to the length of time between resets.