7/23/2019 Price Value of a Basis Point
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Price Value of a Basis Point
Price value of a basis point (PVBP) = Dollar Value of an 01
(DV01)
The dollar change in the price of a bond that is associated with
a one basis point change
in the bonds ield!
" bigger price value of a basis point #eans a bigger #ove in the
bonds price due to agiven change in interest rates!
PVBP is a wa of #easuring price sensitivit in dollars $ust as
duration #easures pricesensitivit in percentages
To find the price change for a 1% change in ield&
' = Dollar a#ount of coupon pa#ents #ade in a ear = of coupon
pa#ents re#aining (not of ears)* = B+* as a deci#alBased on Par =
100
+,a#ple& -or a .0 r! Bond with 10% coupon rate and /%
ield&'=10=0*=!0/
olving the above e2uation3 it has a price ris4 of 511!6!
7f = 1%3 p = 511!6
PVBP (Price Value of a Basis Point) = p
100
This is the change in price for a single basis point change when
par = 100!
Previous +,a#ple& PVBP = 511!6 = 5 0!116 = 11!6 cents
100
7f interest rates change (in either direction) b 1 bp3 the bonds
price will change (in theopposite direction) b appro,i#atel 11!6
cents!
1
+
+
+
= +1
818
100
81
11
100
1
8 NNy
C
y
y
CN
yp
7/23/2019 Price Value of a Basis Point
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PVBP is so#eti#es e,pressed in dollars per #illion
where&
PVBP (59#illion) = p 100
Previous +,a#ple&
PVBP (59#illion) = (511!6) (100) = 51316 per #illion
o if interest rates change (in either direction) b 1 bp3 the
price of a 51 #illion (facevalue) bond will change (in the opposite
direction) b appro,i#atel 51316
:e#e#ber&
p is the price change of a bond with a par value of 100 when
there is a 1% change in the
ield!
PVBP is the price change of a bond with a par value of 100 when
there is a !01% (onebasis point) change in the ield!
PVBP (59#illion) is the price change of a bond with a par value
of 5130003000 when thereis a !01% (one basis point) change in the
ield!
Calculating PVBP for a Portfolio
PVBPp= niPVBPi9100
;here ni= face value of securit i
1! -ind the PVBP for each securit in the portfolio and divide
each one b 100!8!
