In this playlist, David has already recorded at least ten videos on duration and convexity which are the two most common measures of single-factor interest rate risk. So, in this video, we wrap it up in one simple explanation that tries to illustrate both duration and convexity and how we apply...
Duration plus a convexity adjustment is a good estimate (approximation) of the bond's price change. We can express this change in percentage terms(%) as given by ΔP/P = -D*Δy + 0.5*C*(Δy)^2; or we can express this in dollar terms ($) as given by ΔP =∂P/∂y*Δy + 0.5*∂^2P/∂y^2*(Δy)^2.
Learning objectives: Explain the process of calculating the effective duration and convexity of a portfolio of fixed income securities. Explain the impact of negative convexity on the hedging of fixed income securities. Construct a barbell portfolio to match the cost and duration of a given...
Learning objectives: Define, compute, and interpret the effective duration of a fixed income security given a change in yield and the resulting change in price. Compare and contrast DV01 and effective duration as measures of price sensitivity. Define, compute, and interpret the convexity of a...
It's my first time posting but I've been reading the forums since I enrolled for the FRM part I more than a year ago and I wanted, before anything else, to thank you all, particularly David, for all the help I've gotten from such a knowledgeable and supportive community while...
I am trying to work on convexity and duration exercises but every time I need the V+ and V- of a bond for my formulas and can't find how to calculate them.
Here's an example:
I have a bond 9% Coupon.
And a 20bp change in Yield. The convexity formula asks me...
This is technical but one of the most robust reviews of duration and convexity that you can find. For example
Chapter 2 Bond Price, Duration and Convexity
Bond Price under Continuous Compounding
Common Fallacies Concerning Duration and Convexity
Simple Counter Examples...
Learning objectives: Calculate the change in a bond’s price given its duration, its convexity, and a change in interest rates. Compare and contrast the major theories of the term structure of interest rates
715.1. Consider the following continuously compounded zero (spot) rate curve...
Learning objectives: Calculate the duration, modified duration, and dollar duration of a bond. Evaluate the limitations of duration and explain how convexity addresses some of them.
714.1. A very risky two-year bond with a face value of $100.00 pays a semi-annual coupon of 18.0% and...
Just thought I would like to share how you actually loose money regardless of the direction of the underlying when you are short gamma (or convexity) by shorting an option.
∆a be the underlying shares (or bonds whatever)
we know convexity as ∆a+ 1/2 Г a^2
Thus, our net position will be ∆a -...