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FRM Part I · FRM Exam Part I · Applying Duration, Convexity, and DV01

A fixed-income desk holds three positions with DV01s of +$1,200, +$800 and -$500 (the last is a short position). Assuming a small parallel upward shift of 10 basis points in yields, what is the approximate change in the portfolio value?

The portfolio loses about $15,000. DV01 values add across positions, with the short position carrying a negative sign, giving $1,500 per basis point. A 10 basis point rise in yields multiplies this by ten, and rising yields reduce bond values.

  1. AA loss of about $15,000Correct
  2. BA gain of about $15,000
  3. CA loss of about $25,000
  4. DA loss of about $9,000

Explanation

Portfolio DV01 is additive: 1,200 + 800 - 500 = $1,500 per basis point. A 10bp rise in yields therefore reduces value by about 1,500 x 10 = $15,000. A loss of $25,000 ignores the sign of the short position and adds all three DV01s as positive.

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