Duration, Convexity and Asset Liability Management – Calculation reference
By Jawwad on July 3rd, 2010
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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Categorized under:
Asset Liability Management.
Tagged with:
Black Scholes Analysis,
Black Scholes Equation,
Black Scholes Formula,
Black's Formula,
Derivative Pricing,
Financial Engineering,
Forward Contracts,
Forward Price,
interest rate caps,
Interest rate derivatives,
interest rate floors,
Interest rate options,
Pricing Glossary,
Pricing Reference,
risk management.
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