Effective duration

Effective Duration
A duration calculation for bonds with embedded options. Effective duration takes into account that expected cash flows will fluctuate as interest rates change.
Effective Yield ...

Effective duration
The duration calculated using the approximate duration formula for a bond with an embedded option, reflecting the expected change in the cash flow caused by the option.

While compact, effective duration only measures the effect of a parallel shift in the yield curve across all maturities.

effective duration The duration for a bond with an embedded option when the value is calculated... effective net worth The value of shareholder's equity in a firm plus subordinated debt (debentures...

Embedded options and effective duration
For bonds that have embedded options, such as puttable and callable bonds, Macaulay duration will not correctly approximate the price move for a change in yield.

option-adjusted duration (effective duration)
A measure of the bond's movement for a shift in the yield curve. For noncallable bonds modified duration and effective duration are the same.
option-adjusted spread ...

See also: Yield, Securities, Short, Portfolio, Bonds