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After completing this reading, you should be able to:
- Describe an interest rate factor and identify common examples of interest rate factors.
- Define and compute the DV01 of a fixed income security given a change in yield and the resulting change in price.
- Calculate the face amount of bonds required to hedge an option position given the DV01 of each.
- Define, compute, and interpret the effective duration of a fixed income security given a change in yield and the resulting change in price.
- Compare and contrast DV01 and effective duration as measures of price sensitivity.
- Define, compute, and interpret the convexity of a fixed income security given a change in yield and the resulting change in price.
- Explain the process of calculating the effective duration and convexity of a portfolio of fixed income securities.
- Explain the impact of negative convexity on the hedging of fixed income securities.
- Construct a barbell portfolio to match the cost and duration of a given bullet investment, and explain the advantages and disadvantages of bullet versus barbell portfolios.

0:00 Introduction
1:01 Interest Rate Factors
7:58 DV01 of a Fixed Income Security
12:04 Hedging a Bond Position Given the DV01
17:42 Effective Duration of a Fl Security
20:44 Hedging using Duration
28:36 Price Change Using Both Duration and Convexity
32:35 The Impact of Negative Convexity on Hedging
37:57 Example: DV01 of a Callable Bond
40:52 Barbell Portfolio vs. Bullet Portfolio

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