Duration and convexity

[Pit_hit]

Hey guys,
I have an issue with this topic. I have the following numbers:
- Duration of 2.59, and
- Convexity of 4.21.
I just wonder, convexity can be bigger than duration?
Thank you in advance!

 

[S2000magician]

Convexity can be huge, much bigger than duration.
But they’re different units, so that’s not surprising.

 

[Harrogath]

Pit_hit wrote:
Hey guys,
I have an issue with this topic. I have the following numbers:
- Duration of 2.59, and
- Convexity of 4.21.
I just wonder, convexity can be bigger than duration?
Thank you in advance!

Effective duration is a linear approximation of the relation between price and yield, but convexity formula uses a quadratic term that better fits the real non-linear relation between price and yield. In your example, that difference must be due a high YTM variation. Try using both formulas but with a really tiny YTM variation, like 5 basis points. They should give very similar numbers.
Now, if you mean duration like macaulay duration, they are totally different so. Mc duration is the weighet average of the maturity of a bond, so nothing to do with convexity.
Regards