Mathematical Definition
If the flat floating interest rate is r and the bond price is B, then the convexity C is defined as
Another way of expressing C is in terms of the modified duration D:
Therefore
leaving
Where D is a Modified Duration
Read more about this topic: Bond Convexity
Famous quotes containing the words mathematical and/or definition:
“It is by a mathematical point only that we are wise, as the sailor or the fugitive slave keeps the polestar in his eye; but that is sufficient guidance for all our life. We may not arrive at our port within a calculable period, but we would preserve the true course.”
—Henry David Thoreau (1817–1862)
“It’s a rare parent who can see his or her child clearly and objectively. At a school board meeting I attended . . . the only definition of a gifted child on which everyone in the audience could agree was “mine.””
—Jane Adams (20th century)