PV01

PV01, short for Price Value of a 1 Basis Point, is a measure used in fixed income to quantify how much the price of a financial instrument would change for a one-basis-point move in yields. It represents the dollar amount of price change that results from a 0.01% (1 bp) change in the yield curve, all else equal. PV01 is commonly used to assess interest-rate risk, hedge exposure, and compare sensitivity across securities or portfolios. It is closely related to DV01 and BPV, and in many contexts PV01 and DV01 are used interchangeably, with the understanding that the quantity indicates the price impact of a 1 bp shift.

Calculation and interpretation: PV01 is defined as minus the derivative of price with respect to yield multiplied by 0.0001, i.e., PV01 = - dP/dy × 0.0001, where P is price and y is yield. In practice, PV01 is often estimated by computing the price difference for a 1 bp shift in the relevant yield, either for a parallel shift or along a benchmark curve. Positive PV01 denotes that a price increase accompanies a yield decline, while the typical sign convention for many fixed-income instruments is that price moves inversely to yields, yielding a positive convexity-adjusted magnitude.

Applications and limitations: PV01 applies to bonds, Treasuries, mortgages, interest rate swaps, and other fixed-income derivatives. It varies with maturity, coupon, convexity, and current yield. When aggregating across portfolios, the sum of constituent PV01 values provides a portfolio’s total rate risk. However, PV01 is a linear approximation and does not capture convexity or large, non-parallel yield moves, so higher-order risk measures may be needed for substantial changes.