convexity Definition
- 1the state of being curved or bulging outward
- 2the degree to which a curve is bent or bulges
Using convexity: Examples
Take a moment to familiarize yourself with how "convexity" can be used in various situations through the following examples!
Example
The convexity of the lens helps to focus light on the retina.
Example
The convexity of the hill made it difficult to climb.
Example
The convexity of the mirror distorted the reflection.
convexity Synonyms and Antonyms
Phrases with convexity
a characteristic of a bond or portfolio of bonds where the price increases more than proportionally with a decrease in interest rates
Example
The bond has positive convexity, so its price will increase more than proportionally if interest rates fall.
a characteristic of a bond or portfolio of bonds where the price decreases more than proportionally with an increase in interest rates
Example
The bond has negative convexity, so its price will decrease more than proportionally if interest rates rise.
an adjustment made to the price of a derivative to account for the difference between the expected and actual convexity of the underlying asset
Example
The trader made a convexity adjustment to the price of the option to account for the expected change in interest rates.
Summary: convexity in Brief
Convexity [kənˈveksəti] refers to the state of being curved or bulging outward, or the degree to which a curve is bent or bulges. It can be used to describe the shape of objects like lenses, hills, or mirrors. In finance, convexity can refer to the price sensitivity of bonds or derivatives to changes in interest rates, and is often described as positive or negative. For example, 'The bond has positive convexity, so its price will increase more than proportionally if interest rates fall.'
