Positive Convexity Financial Glossary

What is it? A particular type of instability in the duration of an instrument. Positive convexity means that as yields rise, duration declines. Graphically, this is seen as a price/yield curve for which the price at very low and very high yields exceeds the price indicated by a straight, tangent line. For an instrument with positive convexity, duration overstates the interest rate sensitivity. If convexity is low, that is, if the price/yield relationship is close to a straight line, duration is stable. If convexity is high, duration is unstable. The greater an instruments convexity, the less accurate duration will be.

Finance Term Definition Added By: Ella

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