Money duration and PVBP
Money duration converts modified duration into currency: annualized modified duration times the full price, or the market value of the position. The price value of a basis point (PVBP) is the currency change in price for a 1 bp change in yield.
Before this: Interest Rate Risk and Return, Bond Valuation: Prices and Yields
On the exam
- Define, calculate, and interpret modified duration, money duration, and the price value of a basis point (PVBP)
Define, calculate and interpret money duration and PVBP. Expect: a currency loss on a stated position for a given yield change, and PVBP from two bumped prices. Wrong options use par instead of market value or forget the divide-by-2.
How deeply to learn each part
- Know the idea
- Understand it in general. It frames other topics, but you will not calculate with it.
- Use it
- Understand it well enough to solve a question with it. Recognize when it applies.
- Memorize
- Learn it by heart. The exam will not give it to you.
You know this one. The full lesson is folded away. The takeaways, formulas and checkpoint below are your quick refresher, and the checkpoint is a fair test of whether you still do.
You tested strong here. The full lesson is folded away. The takeaways, formulas and checkpoint below are your quick refresher, and the checkpoint is a fair test of whether you still know it.
What is money duration?
Modified duration is a percentage, which is awkward for a trader who wants to know how many euros are at stake. Money duration fixes that by multiplying annualized modified duration by the bond’s full price. Per 100 of par it uses the full price per 100. For a position it uses the market value of the holding, never the par amount. In the US the same idea is called dollar duration .
Multiply money duration by the yield change and you have the estimated change in value, in currency.
Try this 0 of 3
- With the worked example, turn on the par-value comparison
- Set the yield change to exactly +1 bp
- Find the smallest whole-bp rise that loses at least EUR 100,000
A +25 bp move costs about EUR 238,141: 25 × the PVBP of EUR 9,526.
Show working
Market value = par × full price ÷ 100 = 20,000,000 × 95.0827 ÷ 100 = EUR 19,016,540.
Money duration = ModDur × market value = 5.00914 × 19,016,540 = EUR 95,256,511. Per 100 of par: 5.00914 × 95.0827 = 476.28.
Estimated change = −money duration × ΔYield = −95,256,511 × 0.0025 = EUR −238,141.
Basis point value = money duration × 0.0001 = EUR 9,526 per bp (per 100 of par: 0.04763). The PVBP, found by repricing as (PV₋ − PV₊) ÷ 2 at ±1 bp, is almost exactly the same figure (the tiny gap is convexity).
Loss budget: 100,000 ÷ 9,525.65 = 10.50 bp.
- 20000000×95.0827÷100=19,016,540.00, market value
- ×5.00914=95,256,511.18, money duration
- ×0.0025=238,141.28, the estimated loss
- 20000000ENTER95.0827×100÷19,016,540.00, market value
- 5.00914×95,256,511.18, money duration
- 0.0025×238,141.28, the estimated loss
ENTER enter (on the HP, puts the number on the stack)
- 95256511.18×0.0001=9,525.65, PVBP
- 100000÷9525.65=10.50 bp
- 95256511.18ENTER0.0001×9,525.65, PVBP
- 100000ENTER9525.65÷10.50 bp
ENTER enter (on the HP, puts the number on the stack)
A position has a market value of 19,016,540.00 and an annualized modified duration of 5.00914. Its money duration is closest to:
5.00914 × 19,016,540.00 = 95,256,511.18
Money duration95,256,511.18
- 5.00914×19016540=
- 5.00914ENTER19016540×
ENTER enter (on the HP, puts the number on the stack)
A position has a money duration of 95,256,511.00. If the yield changes by +25 bp, the estimated change in its value is closest to:
−95,256,511.00 × 0.0025 = -238,141.28
Estimated change in value-238,141.28
- 95256511×0.0025=+|-
+|- change sign
- 95256511ENTER0.0025×CHS
ENTER enter (on the HP, puts the number on the stack) · CHS change sign
Exam tip The yield change goes in as a decimal and the value in as market value. Check both before you multiply.
What is the price value of a basis point?
The price value of a basis point (PVBP) is the change in a bond’s full price for a 1 bp change in yield. Instead of using a duration figure, you reprice the bond a basis point down and a basis point up, take the difference and halve it.
and are the full prices at a yield 1 bp lower and 1 bp higher. Halving is needed because the two prices lie 2 bp apart; you want the change for one. PVBP is a price in currency per 100 of par, not a percentage. It is also called PV01, and in the US DV01 .
A bond's full price is 95.13032 at a yield 1 bp lower and 95.03506 at a yield 1 bp higher. Its PVBP per 100 of par is closest to:
(95.13032 − 95.03506) ÷ 2 = 0.04763
PVBP (per 100 of par)0.0476
- 95.13032−95.03506=÷2=
- 95.13032ENTER95.03506−2÷
ENTER enter (on the HP, puts the number on the stack)
The same number is available from duration. The basis point value (BPV) is money duration times one basis point, 0.0001.
For Bond K, 476.28 × 0.0001 = 0.04763, the same figure as the repricing method, reached from duration instead.
A bond has a money duration of 476.28. Its basis point value is closest to:
476.28 × 0.0001 = 0.047628
Basis point value (same unit)0.0476
- 476.28×0.0001=
- 476.28ENTER0.0001×
ENTER enter (on the HP, puts the number on the stack)
Go deeper Why repricing and BPV differ slightly, and how traders use PVBP
Repricing at ±1 bp averages the gain and the loss, which cancels most of the curvature, so it differs from the duration-based BPV only far out in the decimals. For large moves the difference is convexity, covered in the next module.
PVBP is additive across positions: the money values simply add, whereas percentage durations need weights. That is why desks quote risk in PVBP or DV01. To hedge, a trader sizes an offsetting futures position so that its DV01 equals the bond position’s DV01. See the Derivatives topic for the contracts. PVBP by repricing also works for bonds whose cash flows change with yields, because it only needs two prices.
How do the four yield duration measures compare?
- Macaulay duration Memorize a time in years: the horizon where price and reinvestment risk offset
- Modified duration Memorize a percentage: % price change for a yield change
- Money duration Memorize a currency amount for the position, per unit of yield
- PVBP Memorize a currency amount per 1 bp, found by repricing
| Measure | What it is | Answers |
|---|---|---|
| Macaulay duration | PV-weighted average time to cash flows, in years | The horizon at which price and reinvestment risk offset |
| Modified duration | Macaulay ÷ (1 + r per period) | The % price change for a yield change |
| Money duration | ModDur × full price or position value | The currency change for a yield change |
| PVBP | (PV₋ − PV₊) ÷ 2 at ±1 bp | The currency change for a 1 bp change |
All four assume certain cash flows, a change in the bond’s own yield and an instantaneous move, so that no time passes. Duration measures that drop those assumptions come in later modules.
Memorize this
MemorizeMoney duration and PVBP
| Measure | Formula | Unit |
|---|---|---|
| Money duration | AnnModDur × full price (or position value) | currency |
| Value change | −MoneyDur × Δy | currency |
| PVBP | (PV₋ − PV₊) ÷ 2 at ±1 bp | currency per 100 par |
| BPV | MoneyDur × 0.0001 | currency per bp |
Memory hook Money duration is modified duration with a currency sign on it; PVBP is the same thing for one basis point.
Know it cold Always full price or market value, never par. PVBP, PV01 and DV01 are the same idea. PVBP is a price, not a percentage.
- Macaulay duration Memorize a time in years: the horizon where price and reinvestment risk offset
- Modified duration Memorize a percentage: % price change for a yield change
- Money duration Memorize a currency amount for the position, per unit of yield
- PVBP Memorize a currency amount per 1 bp, found by repricing
Quick example
A holding of USD 10,000,000 par is priced at 98.00 (market value 9,800,000) with an annualized modified duration of 6.10. Money duration = 6.10 × 9,800,000 = USD 59,780,000.
- 10000000×0.98×6.1= 59,780,000
- 10000000ENTER0.98×6.1× 59,780,000
ENTER enter (on the HP, puts the number on the stack)
Quick example
The same position, with a money duration of 59,780,000, and a yield rise of 15 bp: −59,780,000 × 0.0015 = −USD 89,670.
- 59780000×0.0015=+|- −89,670
+|- change sign
- 59780000ENTER0.0015×CHS −89,670
ENTER enter (on the HP, puts the number on the stack) · CHS change sign
Quick example
A bond is priced at 100.0562 at a yield 1 bp lower and 99.9438 at a yield 1 bp higher. (100.0562 − 99.9438) ÷ 2 = 0.0562 per 100 of par.
- 100.0562−99.9438=÷2= 0.0562
- 100.0562ENTER99.9438−2÷ 0.0562
ENTER enter (on the HP, puts the number on the stack)
Quick example
A position has a money duration of 59,780,000. Its basis point value is 59,780,000 × 0.0001 = USD 5,978 per basis point.
- 59780000×0.0001= 5,978
- 59780000ENTER0.0001× 5,978
ENTER enter (on the HP, puts the number on the stack)
How it is asked
-
Currency loss on a position
CAD 4,000,000 par, full price 102.40, AnnModDur 6.30, yield +25 bp. Estimated loss?
Market value 4,096,000 × 6.30 = 25,804,800; × 0.0025 = CAD 64,512. Par instead of market value gives 63,000.
-
PVBP from two bumped prices
Full price 96.15; 96.2087 at −1 bp, 96.0913 at +1 bp.
(96.2087 − 96.0913) ÷ 2 = 0.0587. Forgetting the 2 gives 0.1174.
-
Which measure gives a currency change?
Macaulay, modified, money duration or PVBP?
Money duration (per unit of yield) or PVBP (per bp). Modified duration is a percentage.
Exam traps
- Multiplying by par value instead of the market (full) value.
- Using the flat price instead of the full price.
- Forgetting to divide by 2 in PVBP.
- Treating PVBP as a percentage. It is a price, in currency per 100 of par.
Checkpoint
4 exam-style questions. About 90 seconds each.
1An investor holds GBP 5,000,000 par of a bond with a full price of 104.50 and an annualized modified duration of 7.20. If the yield rises by 20 bp, the estimated loss is closest to:
2A bond's full price is 101.20. At a yield 1 bp lower it is 101.2468; at a yield 1 bp higher it is 101.1532. Its PVBP per 100 of par is closest to:
3Which measure most directly tells a portfolio manager the change in a position's value in currency for a given change in yield?
4An investor holds CHF 8,000,000 par of a bond with a full price of 97.25 and an annualized modified duration of 4.10. If the yield rises by 40 bp, the estimated loss in value is closest to:
Key takeaways
- Money duration = AnnModDur × full price (or market value).
- ΔValue ≈ −MoneyDur × ΔYield, with the yield change as a decimal.
- PVBP = (PV₋ − PV₊) ÷ 2 at ±1 bp, and it is almost exactly money duration × 0.0001.
- Always market value, never par.
Quick example
A holding of USD 10,000,000 par is priced at 98.00 (market value 9,800,000) with an annualized modified duration of 6.10. Money duration = 6.10 × 9,800,000 = USD 59,780,000.
- 10000000×0.98×6.1= 59,780,000
- 10000000ENTER0.98×6.1× 59,780,000
ENTER enter (on the HP, puts the number on the stack)
Quick example
The same position, with a money duration of 59,780,000, and a yield rise of 15 bp: −59,780,000 × 0.0015 = −USD 89,670.
- 59780000×0.0015=+|- −89,670
+|- change sign
- 59780000ENTER0.0015×CHS −89,670
ENTER enter (on the HP, puts the number on the stack) · CHS change sign
Quick example
A bond is priced at 100.0562 at a yield 1 bp lower and 99.9438 at a yield 1 bp higher. (100.0562 − 99.9438) ÷ 2 = 0.0562 per 100 of par.
- 100.0562−99.9438=÷2= 0.0562
- 100.0562ENTER99.9438−2÷ 0.0562
ENTER enter (on the HP, puts the number on the stack)
Quick example
A position has a money duration of 59,780,000. Its basis point value is 59,780,000 × 0.0001 = USD 5,978 per basis point.
- 59780000×0.0001= 5,978
- 59780000ENTER0.0001× 5,978
ENTER enter (on the HP, puts the number on the stack)
All Fixed Income formulas, every lesson
Practice exam-style questions on Modified Duration, Money Duration and PVBP
Questions about this lesson?
Where this comes back
- Convexity and Portfolio Duration Fixed Income
- Effective Duration, Key Rate Duration and Empirical Duration Fixed Income
- Credit Risk Fixed Income
- Introduction to Risk Management Portfolio Construction
- Pricing and Valuing Interest Rate Swaps Derivatives
Questions candidates ask
What is money duration?
Modified duration multiplied by the bond's full price or the position's market value. It estimates the currency change in value for a change in yield. In the US it is often called dollar duration.
Is PVBP the same as DV01?
Yes. PVBP, PV01 and DV01 all mean the price change for a 1 bp change in yield.
How do you calculate PVBP?
Reprice the bond at a yield 1 bp lower and 1 bp higher, subtract the second price from the first, and divide by 2.
Spotted an error? Tell us and we will fix it.