can some one explain me more precisely that what is effective duration and how it is different from Duration. While calculating Duration we keep no. years constant and in effective duration we increase it by one, why is that so?
Effective duration (volatility) and duration (DMT) , both are used to measure the rate of change. Relation given is (1+i ) * volatility=DMT That's why the no.of years is less in case of DMT By 1.
