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Bond Convexity Approximation Formula

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Bond Convexity Approximation is an approximation measure of the sensitivity of the duration of a bond to changes in interest rates. Check FAQs

BC A = \frac{P + + P - - 2 \cdot (P 0)}{2 \cdot P 0 \cdot {(Δ y)}^{2}}

BC_A - Bond Convexity Approximation?P₊ - Bond Price when Incremented?P_- - Bond Price when Decremented?P₀ - Bond Value?Δ_y - Change in Interest Rate?

Bond Convexity Approximation Example

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Here is how the Bond Convexity Approximation equation looks like with Values.

Here is how the Bond Convexity Approximation equation looks like with Units.

Here is how the Bond Convexity Approximation equation looks like.

13750 = \frac{35 + 30 - 2 \cdot (5)}{2 \cdot 5 \cdot {(0.02)}^{2}}

13750 = \frac{35 + 30 - 2 \cdot (5)}{2 \cdot 5 \cdot {(0.02)}^{2}}

13750 = \frac{35 + 30 - 2 \cdot (5)}{2 \cdot 5 \cdot {(0.02)}^{2}}

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Bond Convexity Approximation Solution

Follow our step by step solution on how to calculate Bond Convexity Approximation?

FIRST Step Consider the formula

BC A = \frac{P + + P - - 2 \cdot (P 0)}{2 \cdot P 0 \cdot {(Δ y)}^{2}}

Next Step Substitute values of Variables

∴

BC A = \frac{35 + 30 - 2 \cdot (5)}{2 \cdot 5 \cdot {(0.02)}^{2}}

Next Step Prepare to Evaluate

∴

BC A = \frac{35 + 30 - 2 \cdot (5)}{2 \cdot 5 \cdot {(0.02)}^{2}}

LAST Step Evaluate

∴

BC A = 13750

Bond Convexity Approximation Formula Elements

Variables

Bond Convexity Approximation

Bond Convexity Approximation is an approximation measure of the sensitivity of the duration of a bond to changes in interest rates.

Symbol: BC_A

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Bond Convexity Approximation

Bond Price when Incremented

Bond Price when Incremented refers to how the price of a bond changes when certain factors are incremented or increased.

Symbol: P₊

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Bond Price when Incremented

Bond Price when Decremented

Bond Price when Decremented refers to the impact on the price of a bond when the yield (interest rate) decreases.

Symbol: P_-

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Bond Price when Decremented

Bond Value

Bond Value refers to the current worth or price of a bond in the financial markets.

Symbol: P₀

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Bond Value

Change in Interest Rate

Change in Interest Rate refers to the difference between the new interest rate and the previous interest rate.

Symbol: Δ_y

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Change in Interest Rate

Other formulas in Bond Yield category

Go Yield to Maturity

YTM = \frac{CP + (\frac{FV - Price}{Yrs})}{\frac{FV + Price}{2}}

Go Current Bond Yield

CBY = \frac{CP}{CBP}

Go Coupon Bond Valuation

CB = C A \cdot (\frac{1 - {(1 + YTM)}^{- n PYr}}{YTM}) + (\frac{P vm}{{(1 + YTM)}^{n PYr}})

Go Bank Discount Yield

BDY = (\frac{D}{FV}) \cdot (\frac{360}{DTM}) \cdot 100

How to Evaluate Bond Convexity Approximation?

Bond Convexity Approximation evaluator uses Bond Convexity Approximation = (Bond Price when Incremented+Bond Price when Decremented-2*(Bond Value))/(2*Bond Value*(Change in Interest Rate)^2) to evaluate the Bond Convexity Approximation, The Bond Convexity Approximation formula is defined as a measure of the sensitivity of the duration of a bond to changes in interest rates. Bond Convexity Approximation is denoted by BC_A symbol.

How to evaluate Bond Convexity Approximation using this online evaluator? To use this online evaluator for Bond Convexity Approximation, enter Bond Price when Incremented (P₊), Bond Price when Decremented (P_-), Bond Value (P₀) & Change in Interest Rate (Δ_y) and hit the calculate button.

FAQs on Bond Convexity Approximation

What is the formula to find Bond Convexity Approximation?

The formula of Bond Convexity Approximation is expressed as Bond Convexity Approximation = (Bond Price when Incremented+Bond Price when Decremented-2*(Bond Value))/(2*Bond Value*(Change in Interest Rate)^2). Here is an example- 13750 = (35+30-2*(5))/(2*5*(0.02)^2).

How to calculate Bond Convexity Approximation?

With Bond Price when Incremented (P₊), Bond Price when Decremented (P_-), Bond Value (P₀) & Change in Interest Rate (Δ_y) we can find Bond Convexity Approximation using the formula - Bond Convexity Approximation = (Bond Price when Incremented+Bond Price when Decremented-2*(Bond Value))/(2*Bond Value*(Change in Interest Rate)^2).

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Bond Convexity Approximation Formula

Bond Convexity Approximation Example

Bond Convexity Approximation Solution

Bond Convexity Approximation Formula Elements

Other formulas in Bond Yield category

How to Evaluate Bond Convexity Approximation?

FAQs on Bond Convexity Approximation

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