Everything about duration: Convexity
- 26 June 2020 (3 min read)
How a bond’s price responds to changes in interest rates is measured by its duration but its limitation is that it incorrectly assumes a linear relationship between bond prices and yields. Convexity measures the change in a bond’s duration for a given change in yields. Duration and convexity together can help investors understand how a bond or bond portfolio may perform as interest rates change.
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