DV01

DV01 (dollar value of a basis point, also called "dollar duration" or "PV01") measures the dollar change in a bond's price for a 1 basis point (0.01%) change in yield. It is the standard unit of interest rate risk in fixed-income trading.

The formula is:

DV01 = modified duration x price / 10,000

For a par bond ($100 price) with a modified duration of 8.2 years (roughly a 10-year Treasury at current yields), the DV01 is approximately $0.082 per $100 face value. For a $1 million position, that's $820 per basis point.

DV01 is used to:

• Size hedges: To hedge a $10 million 10-year position with 2-year notes, divide the 10-year DV01 by the 2-year DV01 to find the hedge ratio
• Measure portfolio risk: Total portfolio DV01 shows the dollar exposure to a parallel yield shift
• Compare bonds: A higher DV01 means more interest rate sensitivity per dollar invested

DV01 varies across the curve. Short-term bills have very low DV01; long-dated bonds have high DV01. This difference is why curve trades are constructed on a DV01-neutral basis: matching the dollar risk of the long and short legs so the trade profits only from changes in the curve shape, not from parallel shifts.