Duration and Bond Portfolio Analysis: An Overview

Abstract

In recent years, academicians and practitioners have been using the concept of duration more frequently in the analysis of debt securities. Although the use of duration has greatly expanded our insights into the behavior of bond prices and bond risk, it has given rise to a considerable degree of confusion and misunderstanding. The purpose of this review paper is twofold: (1) to clarify the record on what duration is and is not and what it can do and cannot do, and (2) to discuss the appropriate uses of duration in the analysis of security portfolios.