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:
“What is history? Its beginning is that of the centuries of systematic work devoted to the solution of the enigma of death, so that death itself may eventually be overcome. That is why people write symphonies, and why they discover mathematical infinity and electromagnetic waves.”
—Boris Pasternak (1890–1960)
“... we all know the wag’s definition of a philanthropist: a man whose charity increases directly as the square of the distance.”
—George Eliot [Mary Ann (or Marian)