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Glossary

Modified duration

Category — Analytical Metrics
Modified Duration (MD) is the indicator that represents the relative change of the dirty bond price in case a of yield change of 1%, provided that the amounts of expected cash flow based on the bond in the event of a yield change remains constant. It is important to note that modified duration shows the volatility of a dirty price. It is the value by which the dirty price changes when the yield changes by 100 bp.

Modified Duration properties:
1. Modified duration of a zero-coupon bond is less than the time before its maturity.
2. Modified duration decreases as the yield to maturity grows, and vice versa.

More information about modified duration calculation and example of calculations can be found at Bond Calculator Guide.
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