Convexity and Forward start swap: Difference between pages

Latest revision as of 20:14, 9 February 2019

A type of interest rate swap.

A forward start swap has its first interest setting and calculation period starting at a future date.

For example, in order to hedge a loan to be drawn down at a fixed future date.

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-Convexity measures the curvature of the profile representing the relationship between an [[instrument]]’s or a [[portfolio]]'s yield and its value.
+A type of interest rate swap.
+A forward start swap has its first interest setting and calculation period starting at a future date.
-Convexity is normally calculated as:
+For example, in order to hedge a loan to be drawn down at a fixed future date.
-Sum ( PV x t x ( t + 1 ) ) / Sum (PV).
-Where:
-PV = Present Value of individual cash flows.
-t = timing of cash flows.
-Strictly defined, convexity is the rate of change of [[duration]], and [[modified convexity]] is the rate of change of modified duration, for small changes in yield from the given starting yield.
-More loosely, the terms ''Convexity'' and ''Modified convexity'' are sometimes used interchangeably.
-Obviously this can lead to confusion, so it is important to clarify whether convexity or modified convexity is intended.
 == See also ==
-* [[Duration]]
+* [[Interest rate swap]]
-* [[Effective convexity]]
+* [[Swaption]]
-* [[Modified convexity]]
-* [[Modified duration]]
 [[Category:Manage_risks]]
-[[Category:Risk_frameworks]]