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Convexity Adjustment Formula

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Convexity Adjustment refers to the modification made to the duration of a bond or fixed-income security to account for changes in interest rates. Check FAQs

CA = BC \cdot ({Δy}^{2}) \cdot 100

CA - Convexity Adjustment?BC - Bond's Convexity?Δy - Change of Yield?

Convexity Adjustment Example

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Here is how the Convexity Adjustment equation looks like with Values.

Here is how the Convexity Adjustment equation looks like with Units.

Here is how the Convexity Adjustment equation looks like.

0.28 = 7 \cdot ({0.02}^{2}) \cdot 100

0.28 = 7 \cdot ({0.02}^{2}) \cdot 100

0.28 = 7 \cdot ({0.02}^{2}) \cdot 100

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Convexity Adjustment Solution

Follow our step by step solution on how to calculate Convexity Adjustment?

FIRST Step Consider the formula

CA = BC \cdot ({Δy}^{2}) \cdot 100

Next Step Substitute values of Variables

∴

CA = 7 \cdot ({0.02}^{2}) \cdot 100

Next Step Prepare to Evaluate

∴

CA = 7 \cdot ({0.02}^{2}) \cdot 100

LAST Step Evaluate

∴

CA = 0.28

Convexity Adjustment Formula Elements

Variables

Convexity Adjustment

Convexity Adjustment refers to the modification made to the duration of a bond or fixed-income security to account for changes in interest rates.

Symbol: CA

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Convexity Adjustment

Bond's Convexity

Bond's Convexity measures the degree to which its price changes in response to interest rate fluctuations, giving insight into the bond's risk and potential return.

Symbol: BC

Measurement: NAUnit: Unitless

Note: Value can be positive or negative.

Formulas to find Bond's Convexity

Change of Yield

Change of Yield refers to the percentage difference between the current yield of a bond or investment and its new yield.

Symbol: Δy

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Change of Yield

Other formulas in Fixed Income Securities category

Go Conversion Ratio

CR = \frac{P vm}{CP equity}

Go Conversion Value

CV = P \cdot CR

Go Conversion Premium

CP = CV - MP CB

Go Floating Interest Rate

FIR = R ref + FS

How to Evaluate Convexity Adjustment?

Convexity Adjustment evaluator uses Convexity Adjustment = Bond's Convexity*(Change of Yield^2)*100 to evaluate the Convexity Adjustment, The Convexity Adjustment is a refinement made to bond price change estimates to account for the nonlinear relationship between bond prices and yields. Convexity Adjustment is denoted by CA symbol.

How to evaluate Convexity Adjustment using this online evaluator? To use this online evaluator for Convexity Adjustment, enter Bond's Convexity (BC) & Change of Yield (Δy) and hit the calculate button.

FAQs on Convexity Adjustment

What is the formula to find Convexity Adjustment?

The formula of Convexity Adjustment is expressed as Convexity Adjustment = Bond's Convexity*(Change of Yield^2)*100. Here is an example- 0.28 = 7*(0.02^2)*100.

How to calculate Convexity Adjustment?

With Bond's Convexity (BC) & Change of Yield (Δy) we can find Convexity Adjustment using the formula - Convexity Adjustment = Bond's Convexity*(Change of Yield^2)*100.

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Convexity Adjustment Formula

Convexity Adjustment Example

Convexity Adjustment Solution

Convexity Adjustment Formula Elements

Other formulas in Fixed Income Securities category

How to Evaluate Convexity Adjustment?

FAQs on Convexity Adjustment

Variable Name