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Modified duration and convexity with semiannual compounding

Journal of Economics and Finance volume 19, pages 1–15 (1995)Cite this article

Abstract

Both duration and convexity are a function of the curvilinear bond price: yield relationship. While duration measures the slope of the price:yield curve at a given yield-to-maturity, convexity measures the change in duration at this yield-to-maturity. Three shortcomings exist in the presentation of bond price volatility in financial education. First, modified duration and convexity should be used together as measures of bond price volatility. Second, these measures of bond price volatility should properly reflect semiannual compounding. Third, simple linear models for modified duration and convexity should be generally adopted in financial education literature.

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Authors and Affiliations

  1. University of North Texas, 76203, Denton, TX

    C. Steven Cole

  2. Southwest Missouri State University, 65804-0094, Springfield, MO

    Philip J. Young

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  1. C. Steven Cole
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  2. Philip J. Young
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Steven Cole, C., Young, P.J. Modified duration and convexity with semiannual compounding. J Econ Finan 19, 1–15 (1995). https://doi.org/10.1007/BF02920210

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  • DOI: https://doi.org/10.1007/BF02920210

Keywords

  • Interest Rate
  • Bond Price
  • Financial Education
  • Interest Rate Risk
  • Modify Duration