DV01
Dollar change in value for a 1 basis point (0.01%) yield move.
DV01 (Dollar Value of 01) measures interest rate risk in dollar terms. It tells you how much money you make or lose if yields move 1 basis point. For example, a $1 million bond position with 7.5 duration has DV01 ≈ $750 (7.5 × $1M × 0.0001). If yields rise 10bp, you lose ~$7,500. DV01 is more intuitive than duration for portfolio managers because it directly shows P&L impact. It scales linearly with position size: double your notional, double your DV01. Traders use DV01 to aggregate rate risk across different bonds and construct hedges. Convention: usually reported as a positive number for long positions, understanding that rising yields cause losses.
- Linear approximation using duration
- Ignores convexity effects for large moves
- Negative sign convention: rising yields = loss
Modified Duration
Measures the percentage price change for a 1% yield change.
CS01
Dollar change in value for a 1 basis point move in credit spread.
Market Value
The current dollar value of a bond position, calculated as price times notional.
Total Horizon Return
Sum of all return components over the holding period.
Macaulay Duration
The weighted average time (in years) to receive the bond's cash flows.
Convexity
Measures the curvature of the price-yield relationship — how duration itself changes.