Glossary Term: EFFECTIVE DURATION
Definition(s) for EFFECTIVE DURATION:
1. ) refers to one of the following: (1) One of several methods of expressing duration. More accurate than Macaulay duration or modified duration. (2) A synonym for empirical duration, A measure of duration calculated by 'backing into' the duration value using changes in observed market prices resulting from changes in prevailing rate. (3) A synonym for option-adjusted duration, a duration measure that does allow for changes in cash flows as yields change A variation of effective or empirical duration. Option adjusted duration incorporates the expected duration-shortening effect of an issuer's embedded call provision. It is also called adjusted duration.
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