......... Lee becomes curious about the convexity of these two portfolios and asks how to interpret this metric, independent of yield and duration. Hannon explains that assuming constant yield and duration, higher convexity is a beneficial property of a fixed income portfolio.
问题
Identify whether Hannon’s comment about convexity is correct. Justify your response.
解析
Hannon’s statement is correct.
Both duration and convexity measure the sensitivity of a market value of a bond to the changes in interest rates. While duration captures the linear dependence between rates and prices, convexity, being a measure of non-linear dependence, provides an additional precision in estimating how a bond’s price reacts to a change in interest rates.
Convexity serves an investor’s interests when interest rates either rise or fall. Holding all other factors constant (i.e., yield and duration), as compared to a bond with lower convexity, a bond with higher convexity tends to appreciate more when interest rates decline and depreciates less when interest rates rise.
老师这里为什么说 "higher convexity is a beneficial property of a fixed income portfolio"是正确的?
我的问题:
- 凸度越大, structure risk不就是越大吗?
- 如果higher convexity 真的是 beneficial 的, 那为什么immunization的时候, 还要在MV和duration都match的portfolio里面, 选一个convexity最小的?
