APPENDIX F


Duration-weighted yields

Why use the expression

F.1

instead of the more obvious

F.2

to calculate a sector yield?

The reason is that the yield calculated by (F.1) does not work if the curve change is non-parallel, or (equivalently) if not all the δyi are the same. A suitable value for δy will give the same result whether treating the portfolio as a single security, or as an ensemble of many. In other words,

F.3

Since

F.4

the result follows.

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