Convexity correction sign
Using duration alone to estimate a bond's price after a large yield move - does it overestimate or underestimate the true price, and why?
Show hints (2)+
- Duration is a linear (tangent-line) approximation.
- A convex curve lies above its tangent.
Answer
Reveal answer →Final answer
Underestimates; the price-yield curve is convex, so convexity adds a positive correction
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