- What is effective convexity?
- What is a non-parallel shift?
- What happens when yield curve shifts down?
- What does a parallel shift in the yield curve mean?
- What is a non-parallel shift in the yield curve?
- What is yield curve risk?
- Which of the following duration measures is most appropriate if an analyst expects a non-parallel shift in the yield curve?
- What is parallel shifting?
- What does convexity mean in bonds?
- How do you calculate KRD?
- What is duration and convexity?
- What is a butterfly shift?

## What is effective convexity?

The effective convexity of a bond is a curve convexity statistic that measures the secondary effect of a change in a benchmark yield curve.

…

In the same way, we use the effective convexity to measure the change in price for a change in the benchmark yield curve for securities with uncertain cash flows..

## What is a non-parallel shift?

Nonparallel shift in the yield curve. A shift in the yield curve in which yields do not change by the same number of basis points for every maturity.

## What happens when yield curve shifts down?

This may happen, for example, when the yields of short and long term maturities increase more than those of medium term maturities. Such a shift will look something like this: … If the yield curves turn flat or downward sloping, it indicates a sign of looming problems for the economy.

## What does a parallel shift in the yield curve mean?

A parallel shift in the yield curve is when interest rates across all maturities change by the same number of basis points. … Instead, it indicates an overall change in interest rates.

## What is a non-parallel shift in the yield curve?

A shift in the yield curve in which yields do not change by the same number of basis points for every maturity.

## What is yield curve risk?

The yield curve risk is the risk of experiencing an adverse shift in market interest rates associated with investing in a fixed income instrument. When market yields change, this will impact the price of a fixed-income instrument.

## Which of the following duration measures is most appropriate if an analyst expects a non-parallel shift in the yield curve?

Which of the following duration measures is most appropriate if an analyst expects a non-parallel shift in the yield curve? Price sensitivity to a non-parallel shift in the yield curve can be estimated using key rate durations.

## What is parallel shifting?

With reference to yield curve movements, a parallel shift is an equal shift of the whole curve; either upwards or downwards. A parallel shift in the yield curve occurs when the interest rate on all maturities increases or decreases by the same number of basis points.

## What does convexity mean in bonds?

Convexity is a risk-management tool, used to measure and manage a portfolio’s exposure to market risk. Convexity is a measure of the curvature in the relationship between bond prices and bond yields. … If a bond’s duration increases as yields increase, the bond is said to have negative convexity.

## How do you calculate KRD?

As mentioned earlier, the sum of the KRD values K = K 1+K 2+… +K N must equal (B΄ –B΄ +)/(2δ), where B΄ – and B΄ + are the bond prices resulting from a downward and respectively upward parallel shift of the base yield curve, whereby all input zero rates are shifted simultaneously by the given one sided rate shift δ.

## What is duration and convexity?

What Are Duration and Convexity? Duration and convexity are two tools used to manage the risk exposure of fixed-income investments. Duration measures the bond’s sensitivity to interest rate changes. Convexity relates to the interaction between a bond’s price and its yield as it experiences changes in interest rates.

## What is a butterfly shift?

A change in the yield curve for bonds in which yields on short-term bonds and long-term bonds change the same amount but the yield on medium-term bonds does not. The term comes from the shape of the yield curve in these situations; it looks like a butterfly flapping its wings. …