Interest rate risk exposure, assessment

We will discuss two approaches for assessing the interest rate risk exposure of a bond or a portfolio. The first approach is the full valuation approach that involves selecting possible interest rate scenarios for how interest rates and yield spreads may change and revaluing the bond position. The second approach entails the computation of measures that approximate how a bond s price or the portfolio s value will change when interest rates change. The most commonly used measures are duration and convexity. We will discuss duration/convexity measures for bonds and bond portfolios. Finally, we discuss measures of yield curve risk. 

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