PVBP / DV01
Definition
Price Value of a Basis Point (PVBP) / Dollar Value of 01 (DV01). The change in the present value of a position or portfolio for a one basis point (0.01%) parallel shift in interest rates. The two terms are used interchangeably in practice.
What This Actually Means
If a portfolio has a PVBP of £500,000, a one basis point rise in rates reduces its present value by £500,000. A 100bp move would reduce it by approximately £50 million (though convexity means the relationship is not perfectly linear for large moves). PVBP is the standard unit for expressing rate sensitivity — it allows hedgers to size trades precisely: if a mortgage book has a PVBP of £1 million and a swap has a PVBP of £10,000 per £100m notional, you need £10bn of swaps to hedge it.
Where It Matters
PVBP is the building block of structural hedge construction and EVE sensitivity reporting. It is additive across positions, which makes it powerful for aggregating risk across a complex banking book — you can sum PVBPs across all assets, liabilities, and derivatives to get a net portfolio sensitivity.
The limitation is that PVBP assumes a parallel shift in rates and is a linear approximation. For positions with significant convexity — options, callable bonds, mortgages with prepayment optionality — PVBP understates the true sensitivity in large rate moves because it does not capture the curvature of the price/yield relationship. This is why PVBP should be supplemented with convexity measures for portfolios containing significant option risk.
PVBP is also point-in-time and maturity-bucket specific when reported as a profile rather than a single number. A PVBP profile — showing sensitivity at each maturity bucket across the curve — is more informative than a single aggregate figure because it reveals where on the curve the exposure sits, making it the natural tool for identifying the non-parallel risk concentrations that steepener and flattener scenarios are designed to stress.