Mathematical Principles and Quantitative Finance · 13. novembre 2023
Bond convexity describes the curve-like relationship between bond prices and interest rates, causing prices to rise more when rates drop than they fall when rates rise. This curvature means bond price changes are not linear and convexity corrects pricing models, especially for large rate moves. #BondConvexity
Mathematical Principles and Quantitative Finance · 03. juin 2023
In finance, convexity enhances potential returns by amplifying gains from fluctuations in underlying assets. Jensen’s inequality shows that the expected payoff of a convex product like options is greater than that of linear products, making convexity crucial for pricing and investment strategies.