All Questions
11
questions
0
votes
1
answer
76
views
Proving that Convexity approx. equals Duration squared but something goes wrong?
I am trying to derive a formula for bond convexity that I saw in a textbook which states that
$$\text{convexity} = \frac{\text{Macaulay duration}^2 + \text{Macaulay duration} + \text{dispersion}}{(1+\...
- 281
0
votes
1
answer
90
views
Duration and convexity of an open term loan/bond!
Imagine an open term loan with monthly interest payments of [x]% and the principle due when the loan is closed. Both the lender can call the loan, and the borrower can return the loan (with no penalty)...
- 1
1
vote
2
answers
741
views
Bond Convexity and Maturity
What the reasoning for why bond convexity increases with maturity. Heuristic explanations are somewhat better as I would like a fundamental understanding.
Also what causes a more convex bond to be ...
- 2,542
3
votes
0
answers
685
views
Modified duration and convexity of a bond in R
A soft question:
Are there any existing packages in R that allows one to compute the modified duration and convexity of bonds in R? If there isn't, how can one go about doing so (with formulas) with ...
- 205
1
vote
1
answer
3k
views
Derivation of convexity formula
Let's say that I have a bond that pays coupon on a semi-annual basis. Therefore, the price of this bond can be calculated using the following formula:
$$ P = \sum_{i=1}^N \frac{CF_i}{(1 + YTM/2)^{...
- 1,850
0
votes
1
answer
941
views
Convexity for historical bond data
I'm trying to write a program to calculate the convexity of a bond. The bigger idea is, that if I have access to the actual price for each point in time, I should be able to calculate various features ...
- 174
0
votes
1
answer
601
views
A very simple question about convexity of a bond
I was always under the impression that, ceteris paribus, higher the coupon rate, higher the convexity of the bond.
But Investopedia says the following:
"zero-coupon bonds have the highest degree ...
- 277
2
votes
1
answer
2k
views
Proof of the convexity adjustment formula
Let $y_0$ be the forward bond yield observed today for a forward contract with maturity $T$, $y_T$ be the bond yield at time $T$, $B_T$ be the price of the bond at time $T$ and let $\sigma_y$ be the ...
- 2,542
5
votes
1
answer
5k
views
Why does a barbell portfolio have higher convexity than a bullet porfolio
I cannot quite understood absolutely why a barbell portfolio has higher convexity than a bullet porfolio.
I can easily understand how the parallel line represents duration but I cannot see what the ...
- 2,542
-3
votes
2
answers
1k
views
Why Is Bond Time Value Risk Not Considered in Bond Immunization?
I know bond portfolio immunization includes duration and (if the hedging period is longer) convexity matching. These are equivalent to taking the first and second partial derivatives of the bond ...
- 2,806
9
votes
1
answer
1k
views
Bond convexity Treasuries futures
I know that long-duration bonds, on a a single bond basis, exhibit convexity. However, do Treasuries futures prices and the 10 year yield exhibit the same property?
Below is a plot of continuous 10 ...
- 2,108