Mar 152015

Convexity is the second derivative of changes in the price of a bond for changes in its yield to maturity. It measures changes in modified duration as yields change. Any financial product which has discount factors in it will exhibit convexity (e.g. Swaps, FRA’s, Bonds). See Modified Duration

More on banking and finance terms tomorrow, so please come back for more on what the meaning is of words like Convexity.

Example of Convexity in use?

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