"1. Price changes are not linear, but a curvilinear (convex) function. It measures the degree to which the relationship between a bond’s price and yield departs from a straight line. It is the term used to refer to the degree to which duration changes as YTM changes. Convexity is desirable. 2. The convexity is the measure of the curvature and is the second derivative of price with resect to yield (d2P/di2) divided by price. Convexity is the percentage change in dP/di for a given change in yield. 3. Determinants of Convexity: Inverse relationship between coupon and convexity, Direct relationship between maturity and convexity, Inverse relationship between yield and convexitySource: http://in.docsity.com/en-docs/Bond_Price_Volatility_-_Security_Analysis_and_Portfolio_Management_-_Solved_Quiz_"
Add a comment
to see other 4 answers