TY  - JOUR
AB  - Purpose– The purpose of this paper is to derive an easy‐to‐implement and highly accurate formula to approximate the change in the bond price resulting from a change in interest rates.Design/methodology/approach– The bond price is raised to an infinitesimal power and the Taylor series expansion is applied. Then, using the well‐known modified duration and convexity, the new formula is obtained as a limiting case.Findings– It is proved mathematically and illustrated by numerical examples that the new formula generates better results than both the traditional duration‐convexity and the exponential duration approximation formulas.Originality/value– The new formula derived in this paper will be used by risk managers to perform stress‐testing on bond portfolios.
VL  - 9
IS  - 3
SN  - 1526-5943
DO  - 10.1108/15265940810875586
UR  - https://doi.org/10.1108/15265940810875586
AU  - Tchuindjo Leonard
PY  - 2008
Y1  - 2008/01/01
TI  - An accurate formula for bond‐portfolio stress testing
T2  - The Journal of Risk Finance
PB  - Emerald Group Publishing Limited
SP  - 262
EP  - 277
Y2  - 2024/09/21
ER  -