The Use Of Duration In Economic Loss Cases

Abstract

The purpose of this paper is to apply the concept of duration to legal cases involving economic loss. To determine the economic loss, future cash flow payments must be discounted at the rate on long-term bonds. Unfortunately, this rate does not eliminate the reinvestment risk associated with the different maturity structure of the long-term government bond and the time period of economic loss. The application of duration to the procedure of determining the value of economic loss will eliminate the distortion caused by reinvestment risk.