 For this reason, effective duration formula_34 is a better single-figure measure of interest-rate sensitivity, where

formula_35

Here, formula_36 is the price of the MBS at yield formula_32, calculated using an appropriate prepayment model.While compact, effective duration only measures the effect of a parallel shift in the yield curve across all maturities.It does not take into effect other risk factors, such as non-parallel yield curve shifts, convexity, option-adjusted spreads, and others.