Modified Duration , MacDuration and Approx ModDU and MacDU

CFA Level I Fixed Income
#1

Hey guys ,

Can someone kindly explain whats the difference between the approx ModDu ,approx MacDU and the normal modDU/MacDU ?

Apart from the formula whats the difference ? what do they stand for ?

Regards,

HedgeFudge

#2

I’ve never heard of approximate Macaulay duration.

Properly, modified duration should be calculated using smaller and smaller values for ΔYTM, taking the limit as ΔYTM approaches zero. It’s a calculus thing. Nobody does that. Instead, they use some standard value for ΔYTM, knowing that their calculation will be off by a small bit; hence: approximate modified duration.

Similarly for effective duration.

#3

Ah , well in schweser there was MacDu and then Approx MacDu . but anyways , thanks to your explanition I cracked it out :slight_smile:

Thanking ,

Fudge

#4

I think the “approximate” Mac Duration they are referring to comes from multiplying the approx mod duration by (1+r). Basically, using the approximate modified duration to back out the macaulay duration. Maybe schweser considers this method an approximate macaulay duration?

#5

I see.

Silly way to get to Macaulay duration, but it certainly would be approximate if you did.