Convexity

How it is used

Use alongside duration when discussing how interest-rate sensitivity changes as yields move.

Example sentences

1. Convexity helped explain why the duration-only estimate missed the bond's price change.

   A curved price relationship needs more than a linear approximation.

2. The callable bond's convexity changed as redemption became more likely.

   Embedded options can change the shape of the price-yield relationship.

Common collocations

• bond convexity
• negative convexity

Related terms

• bondA debt security that a government or company sells to investors to borrow money. It pays regular interest, called a coupon, and returns the full amount at maturity.
• yieldThe income an investment earns, shown as a percentage of its price or value. For a bond, it is the return an investor gets by buying at the current price.

More terms: Treasury & Markets

• treasury
• securities
• derivative
• forward contract
• swap
• repo
• clean price
• dirty price
• duration
• initial margin
• variation margin
• non-deliverable forward