Convexity measure , Financial Management

We can measure the convexity with the help of following formula:

          1388_convexity measure.png                                                                   ...Eq. (4)

Where,

         Δy     =       Change in yield in decimal.

         V     =       Initial price.

         V-      =       Price if yields decline by Δy.

         V+     =       Price if yields increase by Δy.

It is necessary to understand following three points related to this convexity measure:

  • Convexity doesn't have a simple interpretation as in the case of a duration.

  • The value calculated in equation (4) is more popularly referred to as a "convexity of a bond" rather than the "convexity measure of a bond".

  • Last, the convexity measure reported by the dealers and vendors will differ for an option-free bond.

Posted Date: 9/10/2012 5:23:51 AM | Location : United States







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

Write discussion on Convexity measure
Your posts are moderated
Related Questions
Budgeting: All business owners should recognise and understand the importance of preparing and maintaining a financial budget for their business. Budgets are an essential fi

'A' Priori Probability This is a probability computed by rationally examining existing information. A priori probability can most simply be explained as making a conclusion on

Q. Explain about Pay Back Method? Pay Back Method (PB) :- The payback process is the simplest method. This method computed the number of years required to pay back the original

Question 1: (i) How are education and economic growth connected? (ii) Explain how the export promotion trade strategy may be more growth promoting for developing economies,

Q. What is Purchasing Power Risk? Variations in the returns are caused also by the loss of purchasing power of currency. Inflation is the reason behind the loss of purchasing p

State the economic conditions of cost of capital General economic conditions These include demand for and supply of capital within the economy and level of expected inflatio

Pension fund management Pension fund systems ought to be carefully designed and supervised to make sure that their purposes are met, the economic consequences are appropriate a

BigGardens Ltd (BigGardens) is a private company that owns and operates a chain of garden centres in the Bristol area.  The company has expanded rapidly over recent years, opening

i want some presentation slides of this chapter from page 570 to 580

Trading Mechanism Of Future: Flow of the Order Any person who wants to trade in futures has to contact a Futures Commission Merchant (FCM) or a broker. First, let us look