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imported>Doug Williamson |
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| 1. Broadly, convexity measures the curvature of the line representing the relationship between an instrument’s yield and its value.
| | (EPS or eps). |
| Duration and Modified duration can be used as the basis for straight line estimates of the rate of change of price/present value. Convexity is an estimate of the rate of change of duration. This is often visualised as the degree of 'curviness' of the line representing value versus yield.
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| Convexity is calculated as:
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| '''Sum [PV x t x (t+1)]/Sum(PV)'''
| | Profit attributable to ordinary shareholders ÷ Weighted average number of shares in issue during the period. |
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| 2. More 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.
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| 3. More loosely, the terms ''Convexity'' and ''Modified convexity'' are often used interchangeably. Obviously this can lead to potential confusion, so it is important to clarify whether convexity or modified convexity is intended in any particular context.
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| == See also == | | == See also == |
| * [[Duration]] | | * [[Bootstrap effect]] |
| * [[Modified convexity]] | | * [[Economic value added]] |
| * [[Modified duration]] | | * [[Price to earnings ratio]] |
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| | * [[Shareholder value]] |
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Revision as of 19:59, 13 August 2013
(EPS or eps).
Profit attributable to ordinary shareholders ÷ Weighted average number of shares in issue during the period.
See also
