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Learn about the following:

What basis point value is. How it is calculated. What influences basis point value.
How firms use basis point value. The strengths and weaknesses of basis point value.

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Course Summary

  • What basis point value is
  • How it is calculated
  • What influences basis point value
  • How firms use basis point value
  • The strengths & weaknesses of basis point value

What basis point value is

  • Changes in the yield curve
  • What it shows
  • Calculating BPV
  • Bond example
  • How much you can gain or lose
  • A simple measure

What affects basis point value

  • The maturity of a cash flow or instrument
  • Comparing different maturities-example
  • Adjusting BPV for interest rate expectations
  • How interest rate levels affect BPV
  • Significance-example at different interest rates
  • Changes in BPV and therefore risk
  • Changes to hedge ratios

How basis point value is used

  • Risk limits
  • How and why dealers increase or decrease BPV
  • Hedge ratios-example and assumptions

Advantages & disadvantages

  • Simplicity
  • Use for portfolios
  • No probability of losses
  • Non-parallel changes in the yield curve
  • Credit risks

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