We start by explaining the concept of convexity. We describe how price changes approximated using duration lead to measurement error which can be eliminated using convexity adjustment. We make use of an example to show how actual change in bond price due to change in yield is different from that approximated using duration. The difference is called 'measurement error'. We then use convexity adjustment to eliminate this error. In the end, we describe why convexity adjustment is always positive regardless of whether yields go up or down.
Негізгі бет Bond Convexity
Пікірлер: 92