Convexity measure , Financial Management

Assignment Help:

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.


Related Discussions:- Convexity measure

Cash budget, We need to have done some exploration work on all of the major...

We need to have done some exploration work on all of the major projects for inclusion in our prospectus, but of our $4m we need at least $1m in the bank to pay for all the listing

Interest rate risk in financial management, Q. Interest Rate Risk in financ...

Q. Interest Rate Risk in financial management Interest rate risk is the variation in the single period rates of return caused by the fluctLlaoons in the market interest rate. M

What is accumulated depreciation, Q. What is Accumulated Depreciation? ...

Q. What is Accumulated Depreciation? Accumulated Depreciation - Total DEPRECIATION pertaining to an ASSET or group of assetsfrom the time the assets were placed in services unt

Expects the per capita expenditure, Expects the per capita expenditure: ...

Expects the per capita expenditure: A township expects its population of 5,000 to grow annually at the rate of 5%. The township currently spends $300 per inhabitant, but, as t

Commodities exchange, Explain the organization and function of commodities...

Explain the organization and function of commodities exchange

Discuss the objectives of financial statements, Question: The Statement...

Question: The Statement of Principles for Financial Reporting sets out the principles that should underlie the preparation and presentation of general-purpose financial stateme

What is logistics, What is logistics? Explain the important activities in l...

What is logistics? Explain the important activities in logistics systems. Logistics - meaning . Working of logistics systems - three important activities - Order processing, I

Explain about pink book, Q. Explain about pink book? This shows the var...

Q. Explain about pink book? This shows the various sub heads under which the lum sum amount sanctioned by allotment is to be spent and this indicates the works for which the al

Rate changes and duration estimate, To calculate duration, we need to...

To calculate duration, we need to first obtain the values for V - and V + where V - is the price when the yield decreases by certain number of basis points and V +

Determine the revenues earned from overseas markets, a) This refers a busin...

a) This refers a business, such as Palmolive-Colgate being able to sell the same product using the same marketing approach all over the world. It is used by firms with global brand

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd