I am having trouble understanding the convexity of bonds and the relationship among bonds with different convexities. Exactly what is convexity and what is a simple way to
For instance, how is it possible for two bonds with the same price and same duration to have different convexities? Is convexity independent of price and duration?
For instance, if two bonds are both $100 with a duration of 20, but Bond A has a convexity of 500 and Bond B has a convexity of 100, how will each price be affected if interest rates go up or down? Shouldn't in theory the price of the Bond with higher convexity always will be worth more than the Bond with lower convexity.
Or would Bond A be worth more than Bond B when interest rates go down because it has a higher convexity (vice versa, as in Bond A would be worth less than Bond B if interest rates go up)?