To illustrate how DV01 changes with maturity, we consider a bond with yield y = 3.5% for different maturities, including perpetuity and different values of coupons:

a) zero coupon bonds b) discount bonds with coupon rate c = 0.75%

c) par bonds d) premium bonds with coupon rate c = 6.2%

DV01 is the change in the Dollar Value of a security for a 1 basis point change in rates.

Example 1: 20 year 5% (semi-annual) coupon bond issued at par. What is its yield? Change y by one b.p (up or down) .

and determine the change in the price. Formally DV01 is defined as

DV01= 1 P 10000 y

where P is the slope of the curve, yield-price, which can be y

estimated through usual finite difference:

P P y y