6. Bond Convexity

h. calculate and interpret approximate convexity and distinguish between approximate and effective convexity;

i. estimate the percentage price change of a bond for a specified change in yield, given the bond's approximate duration and convexity;

When is a bond convexity measure typically used?
To improve the estimate provided by duration, particularly for a large change in yield, a convexity measure can be used.

What is the formula for convexity measure?
$$ApproxCon = \frac{PV__ + PV_+ - 2 * PV_0}{(\Delta Yield)^2 * PV_0}$$

Source:

• CFA