Duration and What It Hides

Duration is a straight line drawn through a curved relationship. Near where you drew it the line is close enough to be useful. This course teaches you to use it properly, and to know precisely where it stops telling the truth.

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Six things you will be able to do

Go past the formula. Learn what the number measures, and the four situations where it quietly stops working.

01 Read the price yield curveWhy the relationship bends, and what duration is approximating on it.
02 Compute duration properlyMacaulay, modified and dollar duration, and when each one is the right tool.
03 Estimate a price moveApply it to a real yield change and see the error the straight line leaves.
04 Add convexityThe second order correction, why it helps you, and when it stops being optional.
05 Handle embedded optionsCallable and puttable bonds, where duration can turn negative on you.
06 Name the four blind spotsLarge moves, curve twists, credit spreads and optionality, each stated plainly.
The outcome

What changes after this course

You stop quoting duration as though it were the answer and start stating its range, the size of move it survives and the one it does not.

Duration computed correctly and applied to a real yield move, error included

A convexity adjustment made, and the point where it becomes necessary

Four situations named where duration stops being true, before you rely on it

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