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When duration calculation methodologies collide!
An examination of the effect of duration calculation methodologies on liability hedge ratios
October 2011
Russell has noticed that some fixed income and LDI managers are not using a consistent methodology for calculating effective duration across assets and liabilities.
This Russell Practice Note demonstrates that in the current interest rate environment, using different methodologies for calculating duration across assets and liabilities could result in actual hedge ratios that are materially different from their intended targets. So while the benefits of one method over another can be debated, Russell believes it is critical to choose a single method and apply it consistently within liability hedging programs.
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Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
Russell Investments is the owner of the trademarks, service marks, and copyrights related to its respective indexes.
Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company.
Date of first use: October 2011
USI-11354
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