Questions tagged [convexity]

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151 views

MBS Market Duration & Convexity

Soft question...hopefully. I am working on a swaption hedging strategy. Part of this strategy calls for a forward looking indication of changes in implied volatility, using 1m10y implied as a proxy ...
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0answers
139 views

Pricing inflation lags

I've been looking into a short piece of maths I found on pricing inflation with payment delays, and was hoping someone could confirm whether my understanding was correct or if the maths isn't quite ...
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357 views

A very simple question about convexity of a bond

I was always under the impression that, ceteris paribus, higher the coupon rate, higher the convexity of the bond. But Investopedia says the following: "zero-coupon bonds have the highest degree ...
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2answers
277 views

Duration vs. Convexity Contradiction

A lower coupon bond exhibits higher duration, which means higher price volatility with changing YTM. A lower coupon bond also exhibits higher convexity. However, with higher convexity, bond prices ...
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1answer
502 views

Change of numeraire from bank account to Zcb [closed]

Why is there no drift adjustment when numeraire is changed from bank account (risk neutral measure) to zero coupon bond who matures at time of payoff (fwd risk neutral measure) ?
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1answer
856 views

Convex risk measure and a coherent risk measure?

A coherent risk measure is: $\rho(\lambda X_1+(1-\lambda X_2))$ How can it be shown that everey convex risk measure is indeed a coherent risk measure? I assume that it is enough to show that a ...
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1answer
49 views

Convexity of a rates Bermudan w.r.t strike

Recently there was a nice question asked on convexity of American put w.r.t strike: Convexity of an American put option Does the same hold for a Bermudan option in rates, where they underlyings are ...
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1answer
53 views

Question About Negative and Positive Convexity

I read the following paragraph from investopedia: https://www.investopedia.com/terms/c/convexity.asp If a bond's duration increases as yields increase, the bond is said to have negative convexity. In ...
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1answer
138 views

Convexity adjustment--Assume sport and futures rates move together?

A cash flow argument I typically see for why a convexity adjustment is necessary is the following (taken loosely from Hull 9/e, p. 143): Say I am short an interest rate futures contract (e.g. ...
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1answer
166 views

Which volatility input for in-arrear convexity correction?

When pricing a Libor-in-arrear swap, I am using the following formula (for the cashflow covering the period $[T_{i-1}, T_i]$, ie. paid at $T_i$ and resetting at $T_i$): $V(t) = P(t,T_i)F(t;T_i,T_{i+1}...
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1answer
344 views

Convexity for historical bond data

I'm trying to write a program to calculate the convexity of a bond. The bigger idea is, that if I have access to the actual price for each point in time, I should be able to calculate various features ...
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1answer
517 views

Basis swap spread pricing and bootstrapping

Here is the expression of a basis floating versus floating swap where the first term is a forward CMS Swap leg and the second one is a forward BOR leg where X is the margin that would make equal both ...
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2answers
522 views

Bond Duration hedging with long convexity

How do you build a duration-neutral bond portfolio which is long convexity? can you give me an example?
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1answer
876 views

long fra and a short ed future with same fixing dates, is convexivity negative or positive?

If you are long a FRA (forward rate agreement) and short a ED (Eurodollars) future with the same fixing dates, do you have positive convexity or negative convexity? Why? According to the following ...
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0answers
662 views

Convexity of Portfolio Containing Eurodollar Future and Forward Rate Agreement

Assume an individual is a buyer, i.e., long, of one Forward Rate Agreement and a seller, i.e., short, of one Eurodollar Futures contract. Does the collective portfolio have positive or negative ...
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1answer
371 views

CMS convexity adjustment in a range accrual Monte Carlo

I'm trying to price a CMS indexed range accrual using Monte Carlo simulations. Let's say i have n trajectories of ZC rates using G2++ model under risk neutral measure. My question is how do i take ...
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2answers
714 views

Why Is Bond Time Value Risk Not Considered in Bond Immunization?

I know bond portfolio immunization includes duration and (if the hedging period is longer) convexity matching. These are equivalent to taking the first and second partial derivatives of the bond ...

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