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In finance, bond convexity is a measure of the non-linear relationship of bond prices to changes in interest rates, and is defined as the second derivative of the price of the bond with respect to interest rates (duration is the first derivative). In general, the higher the duration, the more sensitive the bond price is to the change in ...
Convexity is a measure of the curvature of how the price of a bond changes as the interest rate changes. Specifically, duration can be formulated as the first derivative of the price function of the bond with respect to the interest rate in question, and the convexity as the second derivative.
A convex optimization problem is defined by two ingredients: [5] [6] The objective function, which is a real-valued convex function of n variables, :;; The feasible set, which is a convex subset.
This difference in convexity can also be used to explain the price differential from an MBS to a Treasury bond. However, the OAS figure is usually preferred. The discussion of the "negative convexity" and "option cost" of a bond is essentially a discussion of a single MBS feature (rate-dependent cash flows) measured in different ways.
The worst-case complexity of minimization on the class of unimodal functions grows exponentially in the dimension of the problem, according to the analysis of Yudin and Nemirovsky, however. The Yudin-Nemirovsky analysis implies that no method can be fast on high-dimensional problems that lack convexity:
Convexity is a geometric property with a variety of applications in economics. [1] Informally, an economic phenomenon is convex when "intermediates (or combinations) are better than extremes". For example, an economic agent with convex preferences prefers combinations of goods over having a lot of any one sort of good; this represents a kind of ...
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Complex convexity — extends the notion of convexity to complex numbers. Convex analysis - the branch of mathematics devoted to the study of properties of convex functions and convex sets, often with applications in convex minimization. Convex combination - a linear combination of points where all coefficients are non-negative and sum to 1 ...