Convexity Adjustment Calculator

✖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.ⓘ Bond's Convexity [BC]			+10% -10%
✖Change of Yield refers to the percentage difference between the current yield of a bond or investment and its new yield.ⓘ Change of Yield [Δy]			+10% -10%

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

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Formula

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Convexity Adjustment

Formula

`"CA" = "BC"*("Δy"^2)*100`

Example

`"1.75"="7"*(("0.05")^2)*100`

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Convexity Adjustment Solution

STEP 0: Pre-Calculation Summary

Formula Used

Convexity Adjustment = Bond's Convexity*(Change of Yield^2)*100
CA = BC*(Δy^2)*100
This formula uses 3 Variables

Variables Used

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

STEP 1: Convert Input(s) to Base Unit

Bond's Convexity: 7 --> No Conversion Required
Change of Yield: 0.05 --> No Conversion Required

STEP 2: Evaluate Formula

Substituting Input Values in Formula

CA = BC*(Δy^2)*100 --> 7*(0.05^2)*100

Evaluating ... ...

CA = 1.75

STEP 3: Convert Result to Output's Unit

1.75 --> No Conversion Required

FINAL ANSWER

1.75 <-- Convexity Adjustment

(Calculation completed in 00.004 seconds)

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Created by Keerthika Bathula

Indian Institute of Technology, Indian School of mines, Dhanbad (IIT ISM Dhanbad), Dhanbad

Keerthika Bathula has created this Calculator and 50+ more calculators!

Verified by Vishnu K

BMS College of Engineering (BMSCE), Bangalore

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< 14 Fixed Income Securities Calculators

Accrued Interest

Go Accrued Interest = (Face Value*Total Annual Coupon Rate*Days since Last Payment Date)/(Number of Coupon Payments per Year*Accrual Period)

Conversion Premium

Go Conversion Premium = Conversion Value-Market Price of Convertible Bond

Conversion Ratio

Go Conversion Ratio = Par Value at Maturity/Conversion Price of Equity

Convexity Adjustment

Go Convexity Adjustment = Bond's Convexity*(Change of Yield^2)*100

Callable Bond Price

Go Callable Bond Price = Non Callable Bond Price-Call Option Price

Nominal Yield

Go Nominal Yield = (Total Annual Interest Payments/Face Value)*100

Expected Loss

Go Expected Loss = Default Probability*Loss Severity given Default

Putable Bond Price

Go Putable Bond Price = Non Putable Bond Price+Put Option Price

Conversion Value

Go Conversion Value = Market Price per Share*Conversion Ratio

Floating Interest Rate

Go Floating Interest Rate = Reference Rate+Fixed Spread

Dirty Price

Go Dirty Price = Clean Price+Accrued Interest

Clean Price

Go Clean Price = Dirty Price-Accrued Interest

Semi Annual Bond Equivalent Yield

Go Semi Annual Bond Equivalent Yield = Yield per Semi Annual Period*2

Loss Severity

Go Loss severity = 1-Recovery Rate

Convexity Adjustment Formula

Convexity Adjustment = Bond's Convexity*(Change of Yield^2)*100
CA = BC*(Δy^2)*100

What is Convexity Adjustment ?

Convexity adjustment refers to a correction made to the estimated change in a bond's price due to fluctuations in interest rates. While duration provides a good estimate of how a bond's price will move in response to changes in yield, it does not account for the curvature in the price-yield relationship. Convexity adjustment is necessary because bonds exhibit convexity, meaning their price-yield relationship is not perfectly linear. When interest rates change, bond prices may not move exactly as predicted by duration alone; convexity adjustment accounts for this nonlinear relationship. Essentially, convexity adjustment refines the estimation of bond price changes by incorporating the curvature in the price-yield curve, providing a more accurate picture of how bond prices respond to changes in interest rates.

How to Calculate Convexity Adjustment?

Convexity Adjustment calculator uses Convexity Adjustment = Bond's Convexity*(Change of Yield^2)*100 to calculate 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 calculate Convexity Adjustment using this online calculator? To use this online calculator for Convexity Adjustment, enter Bond's Convexity (BC) & Change of Yield (Δy) and hit the calculate button. Here is how the Convexity Adjustment calculation can be explained with given input values -> 1.75 = 7*(0.05^2)*100.

FAQ

What is 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 and is represented as CA = BC*(Δy^2)*100 or Convexity Adjustment = Bond's Convexity*(Change of Yield^2)*100. 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 & Change of Yield refers to the percentage difference between the current yield of a bond or investment and its new yield.

How to calculate 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 is calculated using Convexity Adjustment = Bond's Convexity*(Change of Yield^2)*100. To calculate Convexity Adjustment, you need Bond's Convexity (BC) & Change of Yield (Δy). With our tool, you need to enter the respective value for Bond's Convexity & Change of Yield and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.

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