DurationConvexity Class

Within this class we provide methods for the evaluation and application of the duration and convexity of a bond.

For a list of all members of this type, see DurationConvexity Members.

System.Object
DurationConvexity

public class DurationConvexity

Remarks

The duration can be thought of the weighted average of the times when payments are made. The convexity is the rate of change with which the duration changes with respect to the underlying price.

The notion of duration pays an important role in the hedging and risk analysis of interest bearing investments. These methods are widely applicable but have the drawback that they assume that the interest rate curve which the asset under consideration depends on may only undergo small parallel shifts. In such an instance the duration pays such an important role because the change in a bonds price will be equal to the duration multiplied by the size of the parallel shift in the yield curve.

The notion of convexity allows us to refine "duration" based methods. In particular, the convexity can be viewed as being the coefficient of the second term within the Taylor expansion of the function which expresses the percentage change in the bonds price with respect to the yield. Hence, whereas the duration measures the linear component of the interest rate risk the convexity measures the two term in the Taylor expansion which is the first non-linear component of the interest rate risk. Therefore, convexity allows us to hedge the most significant component of the nonlinear components of a bonds risk.

Requirements

Namespace: WebCab.COM.Finance.Bonds

Assembly: WebCab.DelphiCOM.Bonds (in WebCab.DelphiCOM.Bonds.dll)

DurationConvexity Class

Remarks

Requirements

See Also