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
Seasonal Variation Under this variation, we observe that the variable under consideration shows a similar pattern during certain months of the successive years. An example of s

What is the importance of leverage in business management of a small scale company

How is finance related to the disciplines of accounting and economics? Financial management is fundamentally a combination of economics and accounting. First financial managers

Basic Assumptions of Cost of Capital The Cost of Capital is a dynamic concept affected by a multiplicity of economic and firm factors and assumes the following assumptions rela

Dual Aspect Concept - Accounting Principle This is, no doubt, the basic concept in accounting.  Under this concept, each transaction has got a two-fold aspect: (i) yielding


State about the Internal Benchmarking Compare an internal function to 'the best internally' within same organisation for example different methods of cleaning used by hospit

Advantages and Disadvantages of Investing in Gilts Advantages As the security is issued by the GOI, it has a minimal default risk. Investors have the opportunity to inves

Suppose the government regulates the price of a good to be no lower than some minimum level. Can such a minimum price make producers as a whole worse off?  Explain. As a higher

What is the Trade payable days (turnover) Year-end trade payables/Credit purchases (or cost of sales)x   365days This is the length of time taken to pay suppliers. The rat