Convexity and coupons

Isura

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Why do negative convex bonds have higher coupons than positive convex ones? This is in reference to problem 8 from reading 69 (CFAI).
 
Because a negatively convex bond implies that there is an embedded call feature or some kind of prepayment risk. As a result, the owner of such a bond would have to be compensated for the risk of some or all of the principal being returned to them early, thus exposing them to a reinvestment risk. So, the higher coupon is this extra compensation.
 
Isura:

http://www.analystforum.com/phorums/read.php?11,837506,837506#msg-837506

Cheers,

Ali
 
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