Basis point value
The change in a position's value for a one basis point change in yield: money duration × 0.0001. A hedge is sized so its value is equal and opposite to that of the exposure.
Where you will meet it
Basis point value appears in 6 learning outcomes on the CFA syllabus. A few of them:
- Contrast approaches to one liability with approaches to a schedule of liabilities, and the different ways each can be implemented
“Duration matching needs asset present value at least equal to liability present value, equal money duration (basis point value), and asset convexity above liability convexity but no higher than necessary.”
- Explain the approach known as liability-driven investing
“The core tool is matching the money duration (basis point value) of assets to that of liabilities so the surplus is protected from rate changes; hedge ratio = asset BPV ÷ liability BPV.”
- Show how interest rate futures, forwards and swaps can reshape the risk and return of a portfolio
“Futures needed = (target BPV − portfolio BPV) ÷ futures BPV, where futures BPV is roughly the cheapest-to-deliver bond's BPV ÷ its conversion factor.”
- Assess liability-driven strategies across a range of interest rate scenarios and choose the one that best meets the portfolio's goals
“The hedge needed is the basis point value gap ÷ the BPV of one unit of the hedge.”
See also
Practise it
Practise basis point value until it is automatic: questions that explain every wrong option.
Take the free diagnostic →