CONVEXITY Function

Evaluates the convexity for a security.

Usage

result = CONVEXITY(settlement, maturity, coupon_rate, yield, frequency, basis)

Input Parameters

settlement—The date on which payment is made to settle a trade. For a more detailed discussion on dates see Chapter 8, Working with Date/Time Data in the PV‑WAVE User Guide.

maturity—The date on which the bond comes due, and principal and accrued interest are paid. For a more detailed discussion on dates see Chapter 8, Working with Date/Time Data in the PV‑WAVE User Guide.

coupon_rate—Annual interest rate set forth on the face of the security; the coupon rate.

yield—Annual yield of the security.

frequency—Frequency of the interest payments. It should be 1, 2 or 4.

1—One payment per year (Annual payment)

2—Two payments per year (Semi-annual payment)

4—Four payments per year (Quarterly payment)

basis—The method for computing the number of days between two dates. It should be 0, 1, 2, 3 or 4.

0—Actual/Actual

1—US (NASD) 30/360

2—Actual/360

3—Actual/365

4—European 30/360

Returned Value

result—The convexity for a security. If no result can be computed, NaN is returned.

Input Keywords

Double—If present and nonzero, double precision is used.

Discussion

Function CONVEXITY computes the convexity for a security. Convexity is the sensitivity of the duration of a security to changes in yield.

It is computed using the following:

 

where n is calculated from the function COUPON_NUM and:

 

Example

In this example, CONVEXITY computes the convexity for a security with the settlement date of July 1, 1990, and maturity date of July 1, 2000, using the Actual/365 day count method.

settlement = VAR_TO_DT(1990, 7, 1)

maturity = VAR_TO_DT(2000, 7, 1)

coupon = .075

yield = .09

frequency = 2

basis = 3

PRINT, CONVEXITY(settlement, maturity, coupon, yield, $

   frequency, basis)

; PV-WAVE prints: 59.4050