How do you build a duration-neutral bond portfolio which is long convexity? can you give me an example?


2 Answers 2


I would say you can go

  • Long a bond with a low coupon

  • Short a bond with a higher coupon

For instance current for US Treasury circa 10Y

  • 2% 15NOV26, BPV 8.7265, Convx 89.9624
  • 1.5% 15AUG26, BPV 8.3071, Convx 87.9649

Buy 1,000,000 of the 1.5% and Sell 951,939 of the 2% would give you positive convexity and 0 duration. Of course more extreme coupon differential will give you a much better convexity exposure.

  • $\begingroup$ your example "long 1,000,000 @ 2% and short 1,006,056 @ 1.5% contradicts your statement "Long a bond with a low coupon and Short a bond with a higher coupon" $\endgroup$
    – Nicholas
    Nov 22, 2016 at 21:19
  • $\begingroup$ I had used modified duration instead of BPV when I skipped the spot consideration, that's why it didn't work, fixed it. $\endgroup$
    – Lliane
    Nov 23, 2016 at 0:10

More typically this refers to a portfolio like:

Long 100MM 10yr bond with coupon 3% Short 180MM 5yr bond with coupon 3%

with the principal amounts chosen such that the BPVs in dollars are equal. This portfolio is long convexity.

The term "duration neutral" does not imply matched maturity.


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.