calculates and returns a scalar containing the convexity of a non-contingent cash-flow
The CONVEXIT function calculates and returns a scalar containing the convexity
of a non-contingent cash-flow.
- is an n-dimensional column vector of times.
Elements should be non-negative.
- is an n-dimensional column vector of cash-flows.
- is the per-period yield-to-maturity of the
cash-flow stream. This is a scalar and should be positive.
Convexity is essentially a measure of how duration,
the sensitivity of price to yield, changes as interest rates
C = [1/P] [( d2 P)/( dy2 )]
With cash-flows that are not yield sensitive, and the assumption of
parallel shifts to a flat term-structure, convexity is given by:
where P is the present value,
y is the effective per period yield-to-maturity,
K is the number of cash-flows, the k-th
cash-flow being c(k) tk periods from the present.
print convexit ;
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