Coupon Accepted Successfully!




  • Duration is a good measure when the changes in yield are small
  • However if the yield changes are high then we use the measure of convexity along with duration
  • Convexity is a measure of the curvature of the price / yield relationship


  • Note that this is the second partial derivative of the bond valuation equation w.r.t. the yield
  • Hence, convexity is the rate of change of duration with respect to the change in yield


  • The convexity of the price / YTM graph reveals two important insights:
    • The price rise due to a fall in YTM is greater than the price decline due to a rise in YTM, given an identical change in the YTM
    • For a given change in YTM, bond prices will change more when interest rates are low than when they are high
  • To make the convexity of a semi-annual bond comparable to that of an annual bond, we can divide the convexity by 4
  • In general, to convert convexity to an annual figure, divide by m2, where m is the number of payments per year

Test Your Skills Now!
Take a Quiz now
Reviewer Name