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Beyond Convexity

23.00 mins
Dr. Jessica James
Thu 2 Nov 2023

The recent transition from zero or even negative yields to higher yield environments caught many investors by surprise. The ‘low for longer’ mindset drove the issuance of century bonds from even high quality credits. But these instruments cannot be understood in this environment using familiar duration and convexity approximations - these get it badly wrong. We derived for the first time analytic expressions for these ‘beyond convexity’ terms, and use them to explain the catastrophic loss of value incurred for holders of the super long bonds.

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