Analysis of duration of portfolio investment

Abstract

Duration is an average weighted period in which the discounted incomes from implementing an investment portfolio or a project are generated, with current values of net incomes generated by the portfolio or the project in the period t used as weight coefficients. Duration index measures the average period of effective operation of an investment portfolio as the rate of monetary incomes normalized to the start time of investment. The key point of this method is emphasis on the intensity and evenness of income generation rather than on duration of the period in which a portfolio is profit generating. This means that duration of an investment portfolio allows for standardizing the portfolio activities with various characteristics (terms, numbers of payments in a period, methods for interest calculation ).

Methods for portfolio investment by use of duration index with account to risk of changing interest are grounded. Types of duration indices and the essential determinants oj their change are discussed, with emphasis on the specifics of Macaulay, portfolio du­ration and Usher-Weil duration. Strong and weak sides of these methods for duration measurement are underlined.