## Key Rate Duration

### Key Rate Duration

### What is 'Key Rate Duration'

Key rate duration measures the duration of a security or portfolio at a specific maturity point along the entirety of the yield curve. When keeping other maturities constant, the key rate duration can be used to measure the sensitivity in a bond's price to a 1% change in yield for a specific maturity.

The calculation is as follows:

### Explaining 'Key Rate Duration'

Key rate duration is an important concept in estimating the expected changes in value for a bond or portfolio of bonds because it does so when the yield curve shifts in a manner that is not perfectly parallel, which occurs often. Effective duration, another important bond metric, is an insightful duration measure that also calculates expected changes in price for a bond or portfolio of bonds given a 1% change in yield, but it is only valid for parallel shifts in the yield curve. This is why key rate duration is such valuable metric.### Calculating Key Rate Duration

The formula for calculating key rate duration uses three separate variables. They are:

### Key Rate Duration Interpretation

It can be difficult to interpret an individual key rate duration because it is very unlikely that a single point on the Treasury yield curve will have a upwards or downwards shift at a single point while all others remain constant. It's useful for looking at key rate durations across the curve and looking at the relative values of key rate durations between two securities.

### Key Rate Duration FAQ

#### What is key rate duration?

#### What is key rate?

#### What does a negative duration mean?

#### How do you interpret convexity?

#### What does duration mean?

#### How do you calculate effective duration?

#### Is high convexity good or bad?

### Further Reading

**The Heath–Jarrow–Morton duration and convexity: A generalized approach**

www.worldscientific.com [PDF]

… [8] X. Wu, A new stochastic duration based on the Vasicek … [12] W. Phoa and M. Shearer, A note on arbitrary yield curve reshaping sensitivities using key rate durations, J. Fixed Income 7 (1997) 67–71 … [18] AP Carverhill, When is the short rate Markovian?, Mathematical Finance …

**Interest Rate Risk of Stock Prices in Nigeria: Empirical Test of the Duration and Convexity Model**

journals.sagepub.com [PDF]

… [8] X. Wu, A new stochastic duration based on the Vasicek … [12] W. Phoa and M. Shearer, A note on arbitrary yield curve reshaping sensitivities using key rate durations, J. Fixed Income 7 (1997) 67–71 … [18] AP Carverhill, When is the short rate Markovian?, Mathematical Finance …

**The structured finance market: An investor's perspective**

www.tandfonline.com [PDF]

… [8] X. Wu, A new stochastic duration based on the Vasicek … [12] W. Phoa and M. Shearer, A note on arbitrary yield curve reshaping sensitivities using key rate durations, J. Fixed Income 7 (1997) 67–71 … [18] AP Carverhill, When is the short rate Markovian?, Mathematical Finance …

**The relevance of MCDM for financial decisions**

onlinelibrary.wiley.com [PDF]

… [8] X. Wu, A new stochastic duration based on the Vasicek … [12] W. Phoa and M. Shearer, A note on arbitrary yield curve reshaping sensitivities using key rate durations, J. Fixed Income 7 (1997) 67–71 … [18] AP Carverhill, When is the short rate Markovian?, Mathematical Finance …

**Factors determining constant work rate exercise tolerance in COPD and their role in dictating the minimal clinically important difference in response to interventions**

www.tandfonline.com [PDF]

… [8] X. Wu, A new stochastic duration based on the Vasicek … [12] W. Phoa and M. Shearer, A note on arbitrary yield curve reshaping sensitivities using key rate durations, J. Fixed Income 7 (1997) 67–71 … [18] AP Carverhill, When is the short rate Markovian?, Mathematical Finance …