Identifier: C2T4L2 | Revision: 2026-10-26

Decision and objectives

A duration of four is not enough to describe the portfolio's money risk. The same duration on TRY 10,000 and TRY 10 million creates very different cash losses. DV01 translates local yield sensitivity into money per basis point, making positions comparable and allowing a cash risk budget.

Objectives: Convert basis points into decimal yield moves; Calculate position DV01; Estimate and aggregate local cash sensitivity.

Prerequisites: C2T4L1.

Mechanics

One basis point is 0.0001 in decimal yield. DV01 means the approximate value change for a one-basis-point yield movement. Here quote DV01 as a positive loss magnitude for a one-basis-point rise; signed price change for a rise is negative. Some systems report signed sensitivities, so always state the convention.

Use current dirty market value for the price-sensitivity amount, with quote units converted into cash. Face amount is not a substitute for market value unless price is exactly par. A one-point price change per 100 nominal is also different from one basis point of yield.

Price and return drivers

DV01 ≈ dirty market value × modified duration × 0.0001. Approximate cash change = −DV01 × yield move in basis points. Equivalently use −market value × modified duration × decimal yield change. These are two unit systems for the same calculation; never multiply by both 0.0001 and an already decimal shock twice.

For similar fixed cash flows, sum position DV01s to estimate a parallel-shift exposure. Matching total DV01 does not match every curve point. Positions in different currencies must remain in separate currency buckets or be translated under an explicitly stressed FX assumption.

Worked case

Hypothetical TRY bond: nominal TRY 1,000,000; dirty price 98.50 per 100; market value TRY 985,000; modified duration 3.8. DV01 = 985,000 × 3.8 × 0.0001 = TRY 374.30 per basis point. A 35-basis-point yield rise implies cash loss 374.30 × 35 = TRY 13,100.50, or 1.33% of market value. Estimated new value = TRY 971,899.50. No time passes, cash flow changes, fees or tax are included.

A second position has value TRY 400,000 and modified duration 1.5. DV01 is TRY 60.00; total portfolio DV01 is TRY 434.30. A parallel 35-basis-point rise then gives approximate loss TRY 15,200.50. The calculation is based on values, not adding the two duration numbers.

Adverse case

For a 250-basis-point jump, the first position's linear estimate is loss TRY 93,575, or 9.5%. Such a large shock calls for full repricing and convexity analysis. If the second bond's yield rises only 10 basis points while the first rises 35, total estimated loss is 13,100.50 + 600 = TRY 13,700.50, not the parallel-shift result. Credit spreads and different curve movements can dominate a neat aggregate number.

Practical use

Keep the sensitivity date and input source with the position record. Recalculate after material yield changes, coupon payments, maturity shortening or trades. In an operational hedge, futures contract sensitivity, conversion factors, delivery options, margin and basis require separate analysis; a money DV01 ratio is only a starting point. Commission and tax affect realized outcome, while this local mark calculation excludes them.

Decision boundaries

A risk budget stated in cash can cap a position more clearly than a vague long-duration label. If maximum estimated loss is TRY 5,000 for a 50-basis-point rise and Dmod is 4, maximum model market value is 5,000/(4 × 0.005) = TRY 250,000. This is not a guaranteed loss limit: use stress and liquidity buffers. Decline an allocation that exhausts the entire cash-loss allowance under a small model shock.

Practice and references

Exercise: hypothetical dirty market value TRY 720,000; Dmod 2.6; yield falls 20 basis points; no time or costs. Answer: DV01 = 720,000 × 2.6 × 0.0001 = TRY 187.20; estimated gain = 187.20 × 20 = TRY 3,744; percentage gain = 0.52%.

Takeaway: state DV01's currency and sign convention, then keep basis-point units consistent.

Reference guide: domestic-government-bond, dv01, duration-price-change, DV01, Basis point.

Next: C2T4L3. Topic test: C2T4.

Primary sources (checked 2026-10-26; changing terms require a publication recheck): SEC Investor Bulletin: What Are Corporate Bonds? — Interest rate risk, credit risk, call risk and seniority.

Shared reference guide