Effective duration


The duration calculated using the approximate duration formula for a bond with an embedded option, reflecting the expected change in the cash flow caused by the option. Measures the responsiveness of a bond's price - taking into account that expected cash flows will change as interest rates change due to the embedded option.

Investing Essentials

Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Tax straddle

Technique used in futures and options trading to create tax benefits. For example, an investor with a capital gain takes a position creating an artificial offsetting loss in the current tax year and... Read More

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