Dollar Duration (DV01)
Dollar duration, commonly called DV01 (dollar value of a basis point) or PVBP (price value of a basis point), is the absolute dollar change in the value of a bond or portfolio for a one-basis-point (0.01%) decrease in yield, providing an intuitive and directly actionable measure of interest rate risk in monetary terms.
While percentage-based duration measures (Macaulay, modified) express rate sensitivity as a proportion of bond price, DV01 expresses it in dollar terms per basis point of yield change. This makes DV01 the natural risk currency for fixed income traders, portfolio managers, and risk systems: instead of saying a portfolio has modified duration of 7.5, a practitioner says the portfolio has a DV01 of $750,000 per basis point, meaning the portfolio gains or loses $750,000 for every 1-basis-point change in interest rates.
The relationship between DV01 and modified duration is: DV01 = (Modified Duration / 10,000) x Portfolio Market Value. For a $100 million portfolio with modified duration of 7.5: DV01 = (7.5 / 10,000) x $100,000,000 = $75,000 per basis point. Alternatively: DV01 = (Modified Duration x Price) / 10,000.
DV01 is additive across positions: the total DV01 of a portfolio is simply the sum of the DV01s of each individual position, where long positions contribute positive DV01 (profit if rates fall) and short positions contribute negative DV01 (profit if rates rise). This additivity makes DV01 the standard unit for expressing interest rate risk limits at trading desks: a trader might have a DV01 limit of $500,000, meaning the total net rate sensitivity of their book cannot exceed a $500,000 gain or loss per basis point of yield movement.
For hedging purposes, the required notional of a futures contract to achieve a target DV01 is calculated as: Futures Notional = Target DV01 Hedge / DV01 per futures contract. For 10-year Treasury futures, the DV01 per contract is approximately $65-$85 depending on the CTD bond and its conversion factor, so hedging $500,000 of DV01 would require approximately 6,000-7,700 contracts.
DV01 is also used to express risk in interest rate swaps, credit default swaps, and interest rate options, making it the lingua franca of fixed income risk across asset types. Understanding a portfolio's DV01 profile — total DV01 and its distribution across key rate maturity buckets — is the foundation of professional fixed income risk management.