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
Q. Show the Working capital in a business? Working capital in a business is essential since of operating cycle. However the need for working capital doesn't come to an end afte

Q. Describes the Certainty Equivalent Coefficient Method? Introduction: - Certainty equivalent coefficient process which makes adjustment against risk in the estimates of futur

A Video Rental store has two employees. The Supervisor is paid $2,200 per month. The other employee, Mark is paid $1,200 per month. In addition, Mark is paid a commission of 20 cen

A proposal to extend the ABC Gas Company Ltd's gas distribution network to the NOIDA industrial cluster, about 40 km east of Delhi, at distance of about 20 kms from the ABC's exist

Market Value Ratios Price-Earnings Ratio P/E ratio shows how much investors are willing to pay for earnings per share of the company. Market-to-Bo

which critically examines the benefits and risks to a company, of incorporating corporate debt into a portfolio of equity and debt.

CHARACTERISTICS AND EFFECTS OF SAPS Although SAPs differ somewhat from country to country, they typically have the following features: Reduction in Trade Barriers SAP’s r

Treasury Bills, popularly known as T-bills, are issued in India by the RBI on behalf of the Government of India. T-bills are short-term securities with a maturity of 91

importance of Leverage

What are the financial management problems Traditional approach was challenged was that the treatment was built too closely around episodic events, like incorporation, promotio