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CFA Level I · CFA Level I Exam · Curve-Based and Empirical Fixed-Income Risk Measures

A portfolio manager measures a bond portfolio's sensitivity to changes at specific maturities along the benchmark yield curve, holding all other maturities constant. This measure is best described as:

Key rate duration is the measure described. It captures the percentage price change from a one-unit change in the benchmark yield at a single maturity while other rates stay constant, which lets managers see exposure to non-parallel yield curve shifts, unlike effective or modified duration.

  1. Akey rate durationCorrect
  2. Beffective duration
  3. Cmodified duration

Explanation

Key rate duration measures the sensitivity of a bond's or portfolio's value to a change in the benchmark yield at one specific maturity, with other maturities unchanged. Effective and modified duration describe sensitivity to a single parallel shift of the whole curve.

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