Money Duration and Price Value of a Basis Point

Modified duration is used to measure the percentage price change of a bond given a change in its yield-to-maturity. A related statistic is money duration. The money duration of a bond is a measure of the price change in currency units.

Money duration (MoneyDur) is the product of the annualized modified duration and the full price (PV^Full) of the bond, in either percent of par or the currency value of the position.

MoneyDur = AnnModDur × PV^Full .

The estimated change in the bond price in currency units is very similar to Equation 4. The difference is that for a given change in the annual yield-to-maturity (ΔYield), modified duration estimates the percentage price change while money duration estimates the change in currency units.

ΔPV^Full ≈ −MoneyDur × ΔYield

A similar measure is the price value of a basis point (PVBP), an estimate of the change in the full price of a bond given a 1 bp change in its yield-to-maturity. The PVBP can be calculated using a formula like that for approximating modified duration. Equation 8 is the formula for the PVBP. PV_– and PV₊ are the full prices calculated by decreasing and increasing the yield-to-maturity by 1 bp.