Duration and convexity

[jesswong]

The direction of duration and interest rate is opposite , that means if interest rate increase , the higher the duration, the more the drop in value , but how about the convexity , the larger the convexity , the more INCREASE in value if interest rate increase ? Am I correct ? Thanks !!

 

[S666]

Yes positive convexity always has a positive effect on the price, so whether it’s a fall or rise in interest rates, if the convexity is positive the price will either rise more, or fall less due to that convexity.

 

[AmruthSundarkumar]

If interest rates increase, lower the duration. For larger convexity (positive convexity), if rates increase the lesser the price falls.