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Bond convexity

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Just as (Macaulay) duration is weighted average maturity of bond, convexity is weighted average of maturity-squares of a bond (where weights are PV of bond cash flows). Dollar convexity is also the second derivative (d^2P/dy^2); i.e., the rate of change of dollar duration. Note: the corresponding blog entry at our website contains the downloadable spreadsheet I used here.
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Text Comments (18)
Santo Zheng (1 month ago)
You're a life saver.
katerina liu (1 year ago)
the second method is sooooo helpful
Meh J (1 year ago)
Thanks
Mike (3 years ago)
I absolutely love your tutorials. I'm terrible at reading formulas; your examples help me understand them.
Mike (3 years ago)
If not for these videos, I'd be spending an hour plugging in random numbers in the formula from my textbook LOL
marco (4 years ago)
APOLOGIES FOR MY BAD ENGLISH . I can not find the spreadsheet . I could help locate the spreadsheet ? thank you very much
Deepak Pahuja (4 years ago)
Second approach is really great for intuitive understanding.Thanks..
Utkarsh Pande (4 years ago)
From what I understand, the dollar duration cannot be the actual slope of that tangent at that point as these are discrete values plotted at different pointers and for a true tangent, we need a continuous curve really. what is your take on the same sir?
Thiago Siqueira (6 years ago)
Great job man, thanks for that! Just wondering if you could send me the spreadsheet or the link. cheers
nutrisoyboy (6 years ago)
Amazing videos! Keep it up dood!
Peter C (6 years ago)
It's Great, thanks..I understood more than on lecture
Bionic Turtle (8 years ago)
@mizlinkp but retards are my target audience, I resent you don't appreciate their importance (teasing!) ... thanks for the feedback, I will give consideration to less careful enunciation, maybe slurring(?), i agree enunciation is overrated (teasing again!) ... to be finally sincere, if I slow down sometimes, it's probably b/c some of this stuff is hard for me and sometimes i myself feel like a retard, begin careful is sometimes a coping mechanism.
Anchor (8 years ago)
Like your videos - I just wish you would not enunciate each word as if talking to retards....one just lose interest....
Bionic Turtle (8 years ago)
@Jakers2009 Actually, technical correction to my previous reply: the gradient (slope) of the above tangent line at x = 5% is -426.3. That is the "dollar duration" such that the (modified) "duration" = -426 * -1/Price = ~4.458. And modified duration 4.458 = Mac duration / 1 + (y/k) = 4.57 / (1+5%/2); see @4:05
Bionic Turtle (8 years ago)
@Jakers2009 thanks! Just one clarification that is common source of confusion: the gradient (slope) at x is the "dollar duration" rather than duration (note i am careful to say dollar duration when referring to slope of tangent line). b/c duration = dy/dx*-1/P; i.e., "infected" by price. So, above, the gradient is actually -436.95, i.e., -$436 per 100% (1 unit) or ~$4.36 per 1% (rise/run)
dave p (8 years ago)
i think your videos are great - i also resolved my past confussion regarding the duration and the 1st derivative. I realised that the 1st derivative is the gradient function and that if you take the 1st derviative of any function and then substitute the values of the x-axis at any point on that function then you would get the gradient at that point.
Bionic Turtle (8 years ago)
@Jakers2009 Yes, i hadn't tackled convexity yet....hard to do quickly, hope you like?
dave p (8 years ago)
hi david your still doing the bond videos

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