Microsoft PowerPoint - PoF.ppt

Taylor series expansion 120

ƒ

Convexity

Duration for a (straight) coupon / bullet bondk ... number of periods (CFs) per yearP ... PV of the bond

()

()y

P

y

y

P

CX

2

2 ∂

∂

=

(

)()

∑=

+

⎞⎟ ⎠

⎛⎜ ⎝

+

=

T t

t

P

k

CF

PV

t

t

k

y

CX

1

0

(^2) ́
2

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  Multi-period deterministic cash flows: FI securities - Market risk