convexity

Definition

A volatility measure for bonds used in conjunction with modified duration in order to measure how the bond's price will change as interest rates change. It is equal to the negative of the second derivative of the bond's price relative to its yield, divided by its price. For example, since a non-callable bond's duration usually increases as interest rates decrease, its convexity is positive.

Use convexity in a sentence

The convexity of the bond was significant so we were closely watching for changes in interest rates in the market.

​ Was this Helpful? YES  NO 25 out of 25 people found this helpful.

She unwisely invested most of her capital into the bond despite the probability of extreme convexity over its maturity period.

​ Was this Helpful? YES  NO 25 out of 25 people found this helpful.

I chose to buy the non-callable bond because the volatility measure of convexity was positive because as the interest rate will decrease as the duration of the bond will increase.

​ Was this Helpful? YES  NO 25 out of 25 people found this helpful.

Show more usage examples...

Related Terms

Mentioned in these terms

Browse by Letter: # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
convex positive convexity