Modified and Effective Duration

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in OSFI.MCT

In OSFI MCT, it mentions that (2017.Spring #20b) is excluded since it's not on the syllabus. Section 5.1.1.4 however does quickly contrast modified and effective duration, allowing a candidate to get the full 0.5 credit.

Were the same sections excluded back then as well (i.e. 5.1.1.5/6 on the Spring 2017 syllabus), making this a valid question still?

Comments

  • grahamgraham
    edited February 2019

    Yes, those sections were excluded from the MCT reading after 2017.Spring, but are now part of the new CIA reading on Duration Considerations for P&C Insurers. I should have moved those BattleCards to this new reading instead of marking them as outdated in the MCT BattleCards. I have now done this.

    Since the duration reading is relatively new, it currently has a low rank. Much of the material is already incorporated in other readings like OSFI.MCT and the CIA reading on premium liabilities. If you want to take a quick look at the "durations" reading, you can use this link:

  • savsav

    Mr. graham,

    I am having a hard time conceptualizing the definition of 'Duration'. Duration has always been referred to length of time (usually months or years) in prelim exams so far, yet it refers "% change" in MCT paper. Could you help me understand this distinction?

    Thanks

  • grahamgraham

    I'm not sure I understand when you say the MCT paper refers to duration as a "% change". Your previous understanding is correct in that a duration is a length of time. Try taking a quick look at the CIA.Dur wiki article where duration is explained with easy examples: (You have to be logged in the main part of the site for this link to work.)

    Are you by any chance looking at page 43 on the source text where they show a table of percentages? If not, please let me know where in the paper you're looking so I can take a look myself.

  • savsav

    I was referring to the following excerpt from OFSI.MCT paper (pg 47 of 79) downloaded from cas website.
    ![](https://www.battleactsmain.ca/vanillaforum/uploads/editor/kr/77mcsisrecgo.png ""

    I will go over your recommended battle acts paper on duration. Thanks

  • grahamgraham

    Oh, ok. In the sentence you highlighted, I think when they say "% change", they are referring to the measure of sensitivity, not the duration. So a large % change in the asset (due to an interest rate change) means the asset is very sensitive to a change in interest rates.

    (The duration of an asset or liability is one of the factors that affects its sensitivity to interest rate changes. Longer durations will cause greater % changes in the asset due to interest rate changes.)

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