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Bonds Duration and Convexity

Home Training Intermediate Bonds Duration and Convexity

Course Description

This module covers the sensitivity of bond prices to changes in yield – duration, modified duration, PV01 (or DV01) and convexity. The module covers not only the immediate sensitivity of prices to yield changes but also how that sensitivity itself changes. We will look at how to translate yield change into change in market value for a bond, with real examples. With reference to a table of prices and yields for a real Government bond we explore both the first and second derivatives of the bond price / yield relationship. We also discuss how the non-linearity of the relationship itself impacts pricing. The same bond example will be analysed and you will learn how to calculate the duration, modified duration, the risk (or dollar) duration, convexity and PV01 / DV01. The accompanying spreadsheet provides calculation examples and we will talk you through the calculation methods as well as their application in real trades.
19 Mins.


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