Duration V Convexity

[anomalous1]

A question on the 2013 AM exam states that pension assets and liabilities have the same duration, but pension assets have a higher convexity. A parallel shift upward in rates results in the liablities to losing a greater portion of value because they are less convex.
Could someone explain this to me?

 

[anomalous1]

more convexity equates to increasing postive returns and decreasing negative returns?

 

[MrSmart]

Convexity = good
Honestly, this is the 10th time for this question this week.

 

[waynelee106]

http://www.investopedia.com/terms/c/convexity.asp
Go to this link and observe the picture. Imagine Bond B is liabilities and Bond A is assets. If the yield increases, the higher convexity asset’s price will decrease less than the lower convexity liabilitiy. Surplus increases
If the yield decreases, the higher convexity asset’s price will increase more than the lower convexity liability. Surplus increases.
Hope that helps.

 

[CFA 2015]

Convexity adds a positive component to the price changes, which means it makes the price changes less volatile.
So if the rates go up, the bond with larger convexity will go down less.