DV01 and Rate Risk

What one basis point is worth

DV01 is the change in the value of a position for a one basis point move in rates. It is how a rates desk states its risk, sets its limits and sizes its hedges, because it converts every instrument — a bond, a swap, a future, a whole book — into the same unit: money per basis point. Everything else in rates risk is a refinement of it.

Open in the app · Risk & the Greeks · foundational

Risk & the Greeks is part of the OTC Learn subscription. Everything the app shipped with — 36 products across six asset classes — stays free.

What the lesson covers

1. What it is
2. How it is computed
3. Why it’s used
4. Key rate risk
5. Risks to watch

Key terms

• DV01 — The change in a position’s value for a one basis point parallel move in rates.
• PV01 — The value of a basis point on the par rate — the discounted annuity — rather than on the yield.
• Modified duration — The percentage change in price per unit change in yield, from which DV01 is derived.
• Key rate DV01 — Risk reported bucket by bucket along the curve, rather than as one parallel-shift number.
• Bump and revalue — Computing sensitivity by shifting an input, repricing the book and taking the difference.
• Convexity — The second-order effect that makes DV01 inaccurate for large moves in either direction.

Every key term, A to Z

In practice

Every rates desk runs a DV01 report by currency and by curve bucket, and the limit framework is written in it. The measure crosses into other desks too: a credit trader thinks in CS01, an FX forwards trader in the DV01 of the two currency legs, and a treasury function in the DV01 of the whole balance sheet.

Read next

• Interest Rate Swap — Trade fixed for floating payments
• Forward Rate Agreement — Lock a rate for one future period
• CS01 and Jump to Default — Spread risk and default risk are not the same number

In the app, DV01 and Rate Risk carries a five-step lesson, a worked example and a bank of twelve questions drawn differently every sitting.

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Educational content only. Nothing here is financial advice, an offer to trade, or a recommendation to buy or sell any instrument.