Duration-plus-convexity price move
A bond has modified duration 7 and convexity 90. Yields rise by a large 100 bps. Using the second-order (duration + convexity) approximation, what is the percent change in its price? (signed percent, to 2 decimals)
Show hints (2)+
- %ΔP ≈ −D·Δy + ½·C·(Δy)².
- Δy = 0.01; the convexity term is a positive add-back.
Answer
Reveal answer →Final answer
-6.55 (± 0.01)
Create a free account to see the full worked solution and track your progress.
Interview format: Hedge Fund Quant, Prop Trading