Is the Duration based VaR mapping results, always better than Principal Mapping

[Sumit.K]

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 mapping here is in fact overestimating the VaR ..
Help me out...

 

[David Harper CFA FRM]

Hi sumit,

Isn't the premise the problem: your portfolio duration must be less than portfolio weighted maturity (only an inverse floater can get duration > maturity); or, how did you achieve that outcome?

David

 

[Sumit.K]

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