Language Reference

DURATION (times, flows, ytm) ;

This function is supported by the IML procedure and the iml action.

The DURATION function returns a scalar value that represents the modified duration of a noncontingent cash flow. The arguments are as follows:

Duration of a security is generally defined as

In other words, it is the relative change in price for a unit change in yield. Since prices move in the opposite direction to yields, the sign change preserves positivity for convenience. With cash flows that are not yield-sensitive and the assumption of parallel shifts to a flat term structure, duration is given by

where P is the present value, y is the per-period effective yield-to-maturity, K is the number of cash flows, and the kth cash flow is , periods from the present. This measure is referred to as modified duration to differentiate it from the Macaulay duration:

This expression also reveals the reason for the name duration, since it is a present-value-weighted average of the duration (that is, timing) of all the cash flows and is hence an "average time-to-maturity" of the bond.

The following statements call the DURATION function:

times = 1;
flow = 10;
ytm = 0.1;
duration = duration(times, flow, ytm);
print duration;