Macaulay Duration - Explained
What is Macaulay Duration?
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Macaulay duration Fixed income securities with a zeroMacaulay duration: senior life settlements, Ortiz, C. E., Stone, C. A., & Zissu, A. (2008). Applied Financial Economics Letters,4(3), 205-207. This paper develops the conditions for which a zero Macaulay duration is obtained. Adapting theMacaulay durationfor defaultable and option-embedded bonds, Styger, P., & Van Vuuren, G. (2008). This study examines the shortcomings of the Macaulay duration, and analyses the creation of a new model for calculating the quantity and timing of promised cash flows. DoesMacaulay DurationProvide The Most Cost-Effective Immunization MethodA Theoretical Approach, Zaremba, L. (2017). Foundations of Management,9(1), 99-110. This study offers a theoretical approach that attempts to explain why and when the Macaulay duration concept happens to be a good approximation of a bonds price sensitivity. It is mainly concerned with the basic immunization problem with a single liability to be discharged at a future time q. Adapting theMacaulay durationfor defaultable and option-embedded bonds: economics, Styger, P., & Van Vuuren, G. (2008). South African Journal of Economic and Management Sciences,11(2), 172-189. This study examines the shortcomings of the Macaulay duration, and analyses the creation of a new model for calculating the quantity and timing of promised cash flows. Macaulay Durationand Dynamic Equilibrium: A Fundamental Contradiction, Christensen, P. O. (1983). FREDERICK MACAULAY DEFINED" duration" to be"... the essence of the time element in a loan." After rejecting several possible measures, he defined the duration of, LIVINGSTON, M., & CAKS, J. (1977). THE JOURNAL OF FINANCE,32(1). TheMacaulay duration: a key indicator for the risk-adjustment in fair value, Beccacece, F., Tasca, R., & Tibiletti, L. (2018). International Financial Reporting Standards (IFRS) 13 Fair Value Measurement lays down two methods to adjust Expected Present Value (EPV) for risk. The aim of this note is to identify the relationship between the Risk-Adjusted EPVs rolled out from these two methods. Durationand the measurement of basis risk, Cox, J. C., Ingersoll Jr, J. E., & Ross, S. A. (1979).Journal of business, 51-61. This note criticizes the traditional measures of duration and their role in the measurement of basis risk. A theoretically superior measure of basis risk, which is measured in units of time, like duration, is proposed in its place. The properties of the new measure are discussed and compared to those of the traditional measures. Macaulay's duration: An appreciation, Weil, R. L. (1973). The Journal of Business,46(4), 589-592. This paper draws attention to Macaulay's closed form formula for duration and demonstrates its simple links to alternative closed form formulas for duration presented in recent years. Reverse mortgages and interest rate risk, Boehm, T. P., & Ehrhardt, M. C. (1994). Real Estate Economics,22(2), 387-408. This paper develops and apply a valuation model that quantifies the interest rate risk inherent in fixed-rate reverse mortgages. TheDurationof an AdjustableRate Mortgage and the Impact of the Index, Ott Jr, R. A. (1986).The Journal of Finance,41(4), 923-933. With the increasing use of adjustable-rate mortgages for asset/liability management, there exists the need to property evaluate their price sensitivity to interest rate changes. This paper provides a foundation by deriving the duration of an adjustable-rate mortgage.