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Duration - Financial definition

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Translations:      FR  duration (n.f.) , duration de Macaulay (n.f.)     ES  duraciĆ³n (n.f.) , duraciĆ³n de Macaulay (n.f.)     DE  Duration (n.f.) , Macaulay-Duration (n.f.) 

Concise definition of the term duration

Duration is a summary measure of maturity, coupon and yield effects that is used to approximate a bond's interest rate risk.

Comprehensive definition of the term duration

Also called «Macaulay duration», it expresses the weighted average time to maturity of a bond's cash flows.

Characteristics

The higher a bond's coupon rate and yield, the lower its duration, and the longer its maturity, the higher its duration.
Zero coupon bonds have a duration which is equal to its maturity, as they do not generate any cash flows before maturity.

Interpretation

The higher a bond's duration, the more sensitive it is to variations in market rates. It is thus consideded riskier than a bond with a lower duration

Additional information related to this definition

Definitions of related terms

Bond  •  Dirty price

Formula related to this definition

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