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Thanks a lot Aleksander. I agree that as we move from left to right (increasing interest rates) the gap between the duration of callable and non-callable bond decreases. Considering your explanation the reason behind this is lower rate of price reduction (although higher price differences) wrg...

Hi David, Can you help me with this question. When is the option-adjusted duration of a callable bond closer to the duration of a similar non-callable bond? 1) When bond has a high volatility or 2) when bond trades much lower than the call price I think, effective duration of both...

Hi David Thanks a lot for u'r gudance. It was of great help. I was making some calculation mistake

Hi David, I tried the Bond portfolio mapping with two bonds of 2yrs and 4 yrs maturity. The spot rates were chosen randomly. As in this case the average maturity is 3yrs. and the duration is 3+yrs... The VaR obtained by duration mapping>VaR obtained by Principal mapping Thus the duration...