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financenoob1234


Total Posts: 1
Joined: Oct 2017
 
Posted: 2017-10-10 22:34
As the tenor of a par swap increases, the DV01 should increase linearly right? IE a 20Y swap should have twice as much DV01 as a 10Y swap. However, when I price out swaps I notice that the increase in DV01 from a 10Y to an 11Y is larger than the increase from 11Y to 12Y, and so on. Can anyone explain why the DV01 change decreases as the tenor is increased?

ronin


Total Posts: 216
Joined: May 2006
 
Posted: 2017-10-12 10:35
Shouldn't this be in Basics?

Dv01 doesn't increase linearly.

There is this thing called discounting, which becomes more important the further you go in the future. So the difference between a 1,000 year swap and a 1,001 year swap is tiny, but the difference between a 1 year swap and a 2 year swap is huge.

"People say nothing's impossible, but I do nothing every day" --Winnie The Pooh
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