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Tag Archives: Convexity

Calculating Bond Convexity & Duration in Excel Spreadsheets

Macaulay Duration Excel calculation example

Macaulay Duration Excel Calculation Example A working example of  Macaulay & Modified duration calculation. Earlier we had considered the importance of the Duration risk metric to Asset Liability Management (ALM) and managing interest rate risk. In this post we will look at the specific mechanics of

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Interest Rate Risk: Convexity

Impact of convexity. A normal shaped price-yield curve, such as the one given below, suggests that a bond’s price may not increase by the same absolute amount when interest rates fall by a certain % as when prices decrease due to an interest rate rise

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Interest Rate Risk: Duration, Macaulay Duration and Modified Duration

Duration is a measure of how rapidly the prices of interest sensitive securities change as the rate of interest changes (see application example in the ALM section). For example, if the duration of a security works out to 2 this means that for a 1% increase in interest rates the price of the instrument will decrease by 2%. Similarly, if the interest rates were to decrease by 1% the price of the security would increase by 2%.

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Duration Convexity Asset Liability Management

Duration Convexity and Asset Liability Management What is the relationship between Duration, Convexity and Asset Liability management.  Let’s take a quick look Duration Duration is defined as interest rate sensitivity. For the purpose of this post modified duration is calculated by estimating the price change per

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