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. What is Unsystematic Risks? Unsystematic Risks stems from a managerial inefficiency, technological change in the production process, availability of raw material, changes in

Interpretations of Profitability Ratio's - ROA:       ROA or the Return on Assets ratio is the ratio of net profit to total assets and this ratio indicates whether total assets

#questioDiscuss the applicability of an operating cycle in the vegetable growing business n..

The sales manager considers that there will be substantial foreign exchange risk in trading with Werland. Payment is unpaid in Werland francs in three months time. The current ster

Q. Show the Present Value of a Single Flow ? Discounting or else Present Value of a Single Flow (Lump Sum):- We are able to determine the PV of a future cash flow using the for

Q. Example on Walters dividend model? Example: - The following information is obtainable in respect of a firm: Capitalisation Rate (Ke)                     = 10% Earning

Explain the term “present value of the firm’s operations” (also known as Enterprise Value).  What does this number represent? The present value of the free cash flows of the comp


Q. Introduction of just-in-time inventory management? It has already been observe that a reduction in inventory due to the introduction of just-in-time inventory management ca

All treasury securities are issued on the basis of auction. The auction process is computerized and hence qualified broker-dealers can access it electronically. T