Convexity, Financial Management

Duration is good measure while estimating the percentage price change for a small change in interest rates but the estimation becomes inferior with the larger change in interest rate. Therefore, duration is only a good approximation of the percentage price change for small changes in yield. The reason for this is, duration is a first approximation for a small change in yield. By using a second approximation it can be improved. This approximation is known as a convexity. We can use convexity measure of the security to approximate the change in price that is not explained by duration.        

Posted Date: 9/10/2012 5:22:35 AM | Location : United States







Related Discussions:- Convexity, Assignment Help, Ask Question on Convexity, Get Answer, Expert's Help, Convexity Discussions

Write discussion on Convexity
Your posts are moderated
Related Questions
Significance of Secondary Markets: High liquidity and constant demand in the market need a diversified investor base with different preferences of demand, maturity and risk. Ap

Q. Security Required in Bank Finance? 1) Hypothecation: Under this arrangement, the borrower is provided with working capital finance by the bank against the security of mova

What can a financial institution often do for a surplus economic unit that it would have difficulty doing for itself if the surplus economic unit (SEU) were to deal directly with a

Full, Fair and Adequate Disclosure The architecture of business has evolved from proprietorship to partnership to joint stock companies or publicly held companies. Except fro

Q. Describes Net Operating Income Approach to Capital Structure? NOI (Net Operating Income Approach):- This is another speculation of capital structure which is propounded by '

Q. Major Risk Return Decision Areas? 1) Financial Analysis and Control: This area is concerned with the Financial Statements, i.e. Income Statement, Balance Sheet, Funds Flow S

Explain how to measure the firm risk of a capital budgeting project. The firm risk of a capital budgeting project measures the force of adding a new project to the existing pro

a) The combined two-firm concentration ratio of Motorola (approximately 17.5%) and Nokia (35%) is around 52.5% of the market. b) Up to 2 marks for correct definition: Market sha

Are there any legal factors that could restrict a corporation in its attempt to pay cash dividends to common stockholders?  Explain. A firm may be lawfully restricted as to the

Types of asset-backed securities 1.  Auto Loan-Backed Securities (ALBs) 2.  Credit Card Receivab