## 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: 0.02 --> No Conversion Required
STEP 2: Evaluate Formula
Substituting Input Values in Formula
CA = BC*(Δy^2)*100 --> 7*(0.02^2)*100
Evaluating ... ...
CA = 0.28
STEP 3: Convert Result to Output's Unit
0.28 --> No Conversion Required
FINAL ANSWER
0.28 <-- Convexity Adjustment
(Calculation completed in 00.004 seconds)
You are here -
Home »

## Credits

Created by Keerthika Bathula
Indian Institute of Technology, Indian School of mines, Dhanbad (IIT ISM Dhanbad), Dhanbad
Keerthika Bathula has created this Calculator and 100+ more calculators!
Verified by Vishnu K
BMS College of Engineering (BMSCE), Bangalore
Vishnu K has verified this Calculator and 200+ more calculators!

## <Fixed Income Securities Calculators

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
Conversion Value
​ Go Conversion Value = Market Price per Share*Conversion Ratio
Floating Interest Rate
​ Go Floating Interest Rate = Reference Rate+Fixed Spread

## 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 -> 0.28 = 7*(0.02^2)*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.
Let Others Know
LinkedIn
Email
WhatsApp
Copied!