Sep 19

Dollar value of an 01 (DV01)

by David Harper, CFA, FRM, CIPM

FRM |

dv01intro4

Learning Outcome

  • LO 23.1: Calculate the dollar value of an 01 (DV01) of a security, given a change in yield and the resulting change in price.

DV01 is rescaled modified duration

For FRM candidates, the Tuckman reading gives the dollar value of an 01 (DV01) as this:

dv01

 

But this definition is more intuitive:

dv01_better2

In words, DV01 is the absolute dollar change in the price of the bond given a one basis point change in yield. To compute, we take a bond and simply re-price the bond after we shock the yield up/down one basis point. As above, DV01 is also called the price value of a basis point (PVBP).

 

EditGrid Example

Here is an EditGrid sheet (you can upload to various formats including MS Excel by selecting File > Save As...). The yellow indicates input assumptions, for example:

  • Par: $100.00
  • Coupon: 5.00%
  • Maturity (yrs): 5
  • Initial Yield: 5.00%

Given those assumptions, we do not need a calculator to price the bond at $100 (LO 21.4 says, "Describe the price of a bond relative to its par value when (i) coupon rate = YTM...." Make sure you know this, if the coupon equals the yield to maturity, the price equals the par).

Given those assumptions, we simply shock up +1 basis point and re-price the bond; same with shock down -  1 basis point. The DV01 is the difference in price before and after the shock. In the example above, when repriced at 4.99%, the new price is $100.0438 so the DV01 is $.0438.

EditGrid Spreadsheet by bt/admin.

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