Partial '01

[Number1]

Hi Bionic Turtle,
I'm having trouble understanding Partial PV01; and haven't found anything helpful on Google so far.

In the source reading Tuckman says "More specifically, the partial ’01 with respect to a particular fitted rate is defined as the change in the value of the portfolio after a one-basis-point decline in that fitted rate and a refitting of the [swap rate] curve, where the three-month LIBOR and the par 5-, 10-, and 30-year rates are kept the same"

Can you clarify what this means and what he mean by "refitting of the curve" ?

Thanks very much for you help !

 

[ShaktiRathore]

Hi,
We price the bond first according to the yield curve spot rates for different maturities.
According to my understanding on a yield curve we choose a certain spot(fitted) rate and change the spot rate by 1 bps an see the effect of change in spot rate on the bond price keeping all the other rates constant that is only changing the fitted rate by one bps and using this refitted rate and the rest of the yield curve spot rates which remains same as before(so now we have the refitted curve) we revalue the bond price. PV01 is the change in bond price with 1 bps change in this fitted spot rate, In DV01 we change all the spot rates by 1bps and see the effect on bond price but in PV01 we see the effect of only partial set of rates changing by 1bps on the bond price.

thanks

 

[Number1]

Thanks very much, that make it much more clear. It sounds the same to me as calculating DV01 using key rates. Is there any difference ?

 

[ShaktiRathore]

Hello there,
Yeah DV01 is used to assess the price impact by giving a shock of 1 bps to the entire yield curve which is assumed flat. so the shift is in parallel direction at all points of yield curve by 1 bps. But in case of Partial'01 there is some non parallel shift in the adjoining area of the key rate(fitted rate) by some magnitude of 1bps and the remaining curve remains same and its impact is calculated on bond price similar to KR01 which is the key rate DV01. To me your Partial'01 sound similar to KR01. This is the difference i think. also refer http://forum.bionicturtle.com/threads/key-rate-and-bucket-exposures.2254/#post-7718

thanks