bond duration

He is known for introducing the concept of bond duration.

Instead, one should use bond duration, which takes the average of all cash flows.

More surprisingly, bond duration also has units of years, which can be shown by dimensional analysis, but takes some financial intuition to understand.

The impact of interest rate fluctuations on strip bonds, known as the bond duration, is higher than for a coupon bond.

Bond duration closed-form formula:

For a standard bond with fixed, semi-annual payments the bond duration closed-form formula is:

For duration in economics and finance, see Bond duration and Autoregressive Conditional Duration.

This is equal to the MacAulay Bond Duration times the discount rate, or the modified bond duration times the interest rate.

Specifically, duration can be formulated as the first derivative of the price with respect to the interest rate, and convexity as the second derivative (see: Bond duration closed-form formula; Bond convexity closed-form formula).

Bond duration is the weighted average of the times of the present values of all the cash flows (not distinguishing between principal and interest), while WAL is the weighted average of the actual amounts of the principal payments (disregarding interest, and not discounting).