1. What is PVBP (Price Value of a Basis Point)?

Definition: PVBP measures how much the price of a bond or fixed income security will change in response to a 1 basis point (0.01%) change in yield.

Purpose: It helps investors and portfolio managers understand interest rate risk and the price sensitivity of fixed income securities.

2. How Does the PVBP Calculator Work?

The calculator uses the formula:

Where:

• \( PVBP \) — Price value of a basis point (USD)
• \( \Delta P \) — Price change (USD)
• \( \Delta Y \) — Yield change (basis points)

Explanation: The price change is divided by the yield change to determine the price impact per basis point.

3. Importance of PVBP in Fixed Income

Details: PVBP is crucial for risk management, portfolio hedging, and comparing the interest rate sensitivity of different bonds.

4. Using the Calculator

Tips: Enter the observed price change in USD and the corresponding yield change in basis points (default 1 bp). All values must be > 0.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between PVBP and duration?
A: While both measure price sensitivity, duration measures percentage change while PVBP measures absolute dollar change per basis point.

Q2: Is PVBP the same as DV01?
A: Yes, PVBP is also known as DV01 (Dollar Value of 01) in financial markets.

Q3: How does PVBP vary with bond maturity?
A: Generally, longer maturity bonds have higher PVBP as they're more sensitive to interest rate changes.

Q4: Can PVBP be negative?
A: No, PVBP is always expressed as a positive value representing the absolute price change.

Q5: How is PVBP used in hedging?
A: Traders use PVBP to determine how many securities are needed to hedge against interest rate movements.