uses expected effective duration in calculating the return component E(change in price based on yield view) The bond has no optionality so why not used current modified duration? Please help
I was wondering the same thing. I think it has to do more with using the “expected” duration and “expected” convexity to calculate the change in price but not 100% sure.
CFAI curriculum states: “The effect of the trader’s interest rate view on the total expected return of the portfolio can be estimated using the portfolios’ modified durations and convexities.” However, they go and use “expected” effective duration in the example of Exhibit 56…
Yes, that was final reasoning for why they used “expected” as opposed to the current modified duration. This interpretation however would also imply that under no circumstance the current modified would be used because under assumption of a stable yield curve the expected change in price based on yield and yield spread view is “0” anyway. Any other tip?
Waiting for convincing answers…