DV01

What is it?

DV01, also known as the dollar value of a basis point, is the change in the price of a single bond when its yield moves by one basis point — one hundredth of a percentage point. Unlike duration, which is expressed as a percentage, DV01 is a cash amount, which makes it directly usable for sizing hedges and aggregating risk across positions.

The following formula is used:

DV01 = Modified Duration × BondPrice × 0.0001

• Modified Duration – price sensitivity to a one percentage point change in yield, in years.
• BondPrice – current market price of the bond, including accrued interest, expressed in the currency of the issue for one bond of its face value.

For example, a bond with a face value of $1,000 priced at $922.99 including accrued interest, with a modified duration of 2.76, has a DV01 of $0.2544. Raising the yield by one basis point moves the price to $922.74 — a change of $0.25, as predicted.

Because DV01 is scaled by face value, it is not directly comparable between issues denominated in different amounts: a bond with a face value of 100,000 will show a figure a hundred times larger at identical percentage risk.