A duration measure that is derived from multiplying a bond‘s modified duration by the bond price. It is the price change for a 100 basis points change in yield. In other words, it refers to the actual dollar (monetary) change in the total market value of a bond due to a 100 basis change in its yield. The following equation illustrates this:
This type of duration is useful for measuring effects of yield change on a portfolio, rather than the magnitude of the value of an underlying bond.
The dollar duration, accordingly, forges the following duration relationship:
ΔP= -D** × Δy
where: ΔP is the change in bond price, D** is dollar duration, and Δy is the change in bond yield
Dollar duration can similarly be applied to assets and liabilities (see: asset dollar duration, liabilities dollar duration)
