Convexity

The curvature of the price-yield relationship — a second-order adjustment beyond duration.

%ΔPrice ≈ −Duration × ΔY + ½ × Convexity × (ΔY)². Convexity is large for long-duration, low-coupon bonds. For large yield moves, ignoring convexity systematically understates a bond’s actual price change.

Related terms

Back to Fixed Income