How to Calculate Bond Convexity
What is Bond Convexity?
Convexity measures how bond duration changes with yield, capturing nonlinear price-yield relationship missed by duration alone.
Step-by-Step Guide
- 1Input bond parameters: coupon, yield, maturity
- 2Calculate convexity
- 3Estimate price change accounting for both duration and convexity
Worked Examples
Input
Long-duration bond with high convexity
Result
Larger price gains in falling yields than losses in rising yields
Convexity positive for bullet bonds
Common Mistakes to Avoid
- ✕Using duration alone for large yield changes
- ✕Neglecting option-adjusted analysis for callable bonds
Frequently Asked Questions
Can convexity be negative?
Yes, for callable bonds when rates fall and issuer likely calls.
Ready to calculate? Try the free Bond Convexity Calculator
Try it yourself →