Duration, Convexity and Asset Liability Management – Calculation reference
Duration, Convexity and Asset Liability Management
- Duration
- Convexity
- Approximate Price Change
Duration
Convexity
Where,
?i= change in yield (in decimals)
P0= Initial Price
P+= Price if yields increase by ?i
P-= Price if yields decline by ?i
Approximate Price Change
Total estimated percentage price change= -Duration×?i×100+Convexity×(?i)2×100
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