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
I need a report on the topic Inventory Turnover Ratio. Can you please assist me for Inventory Turnover Ratio report for about 2500 words?

Explain and critically evaluate : a)  The relevance of committed fixed costs in deciding the optimal mix of products to maximum a company's profit and the importance of relevant

Joe's ice cream stroe has to decide whether to shut down this winter or stay open. His projected revenue is $1,200 per week. He has fixed costs (Mortgage, taxes, insurance, etc.) t

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

What is Creative accounting Creative accounting (also termed as aggressive accounting or earnings management) distorts financial analysis of company accounts. Creative accounti

Budgeting and Budgetary Control: The next element of financial management is budgeting and budgetary control.  Budgeting is an integral part of the management accounting proces

a) Sponsorship - refers to monetary gifts or donations in support of a business or an event venture in return for a dominant display of the sponsor's name. In this case, FC Barcelo

What is in store for banking consolidation? A: Merger activity is a natural procedure by which companies make themselves more effective and better able to compete for customers

Give two examples of types of companies that would be best able to handle high debt levels. Companies that manage local telephone service and those that manage natural gas deli

Tokyo Stock Exchange In the 1870s, a securities system was introduced in Japan and public bond negotiations began. This resulted in a demand for public trading institution, whi