Fixed Income Flashcards
as YTM increases, convexity…
decreases
if the bench yield is high, and call value is low, what is convexity
callable/non callable have the same + convexity
if bench yield is low, and call value is high, what is convexity
callable has - convexity
investment horizon > MacDur
reinvestment risk
investment horizon < MacDur
market risk
ApproxModDur approaches ModDur when
the change in the YTM approaches zero
key rate duration measures
bonds sensitivity to a change in the benchmark yield curve at specific maturity segments.
effective duration is used for
bonds with embedded options, since they do not have IRR due to uncertain cash flows
MacDur and ModDur are inversely related to
coupon rate and YTM
the presence of an embedded call option reduces a bonds
effective duration. greater when rates are low and exercise is more likely
money duration measures
price change in terms of units of currency for which its denominated
PVBP measures
the change in the full price of a bond given a 1bp change to YTM
convexity measures
the change in the ModDur as the YTM changes
money convexity is…
convexity * full price of bond
money convexity measures
change in the full price of a bond in units of currency given a change in the YTM
