Forecasts of changes in the market value of equity due to interest rate changes assume parallel shifts in the yield curve.

Question

Quizplus · Accepted Answer

Most basic interest rate risk models, including the commonly used duration and convexity measures, assume parallel shifts in the yield curve when forecasting changes in the market value of equity due to interest rate changes. This simplification helps in making the analysis more tractable, even though in reality, yield curves can shift in non-parallel ways.

Forecasts of Changes in the Market Value of Equity Due