Bond Convexity
Peter Csorba
and
Calvin Lin
contributed
This wiki is incomplete.
\[ \frac{ \Delta P } { P } = - D_E \Delta y + \frac{1}{2} C_E \delta y ^ 2 \]
where \(D_E, C_E \) are the effective duration and effective convexity of the bond
Dollar Convexity \[ C = \frac{ \partial^2 P } { \partial y^2 } \]
Effective Convexity \[ C_E = \frac{C}{P} \]
Approximate convexity \[ C_E \approx - \frac{ P ( y + \Delta y ) - 2 P(y) + P ( y - \Delta y ) } {P(y) \Delta y ^ 2 } \]
Cite as:
Bond Convexity.
Brilliant.org.
Retrieved from
https://brilliant.org/wiki/bond-convexity/