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t. e. 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 ...
In financial mathematics, the Hull–White model is a model of future interest rates. In its most generic formulation, it belongs to the class of no-arbitrage models that are able to fit today's term structure of interest rates. It is relatively straightforward to translate the mathematical description of the evolution of future interest rates ...
Bond convexity is a measure of the sensitivity of the duration to changes in interest rates, the second derivative of the price of the bond with respect to interest rates (duration is the first derivative); it is then analogous to gamma. In general, the higher the convexity, the more sensitive the bond price is to the change in interest rates.
Essentially, the Monte Carlo method solves a problem by directly simulating the underlying (physical) process and then calculating the (average) result of the process. [ 1 ] This very general approach is valid in areas such as physics, chemistry, computer science etc. In finance, the Monte Carlo method is used to simulate the various sources of ...
Duration gap. In Finance, and accounting, and particularly in asset and liability management (ALM), the duration gap is the difference between the duration - i.e. the average maturity - of assets and liabilities held by a financial entity. [1] A related approach is to see the "duration gap" as the difference in the price sensitivity of interest ...
It does not take into effect other risk factors, such as non-parallel yield curve shifts, convexity, option-adjusted spreads, and others. However, effective duration may suffice for many managers as a basic risk measure. Virtually no research has been published on the attribution of other sources of risk for MBS.
In mathematics, a real-valued function is called convex if the line segment between any two distinct points on the graph of the function lies above or on the graph between the two points. Equivalently, a function is convex if its epigraph (the set of points on or above the graph of the function) is a convex set.
t. e. Bond valuation is the process by which an investor arrives at an estimate of the theoretical fair value, or intrinsic worth, of a bond. As with any security or capital investment, the theoretical fair value of a bond is the present value of the stream of cash flows it is expected to generate. Hence, the value of a bond is obtained by ...