Overview

This eCourse covers “duration and convexity”, important concepts used in measuring the price volatility of a bond, or its price sensitivity with respect to a change in its yield. These concepts help investors to protect themselves from bond price risk.

Objective

On completion of this course, you will be able to:
- Use the Taylor approximation formula to estimate the change in the price of a bond for a small change in yield
- Measure the price volatility of a bond using the concept of duration and modified duration
- Employ the properties of duration to construct a portfolio of bonds to immunize future obligations against interest rate risk
- Calculate the degree of non-linearity of the price-yield curve by means of the convexity equation

Content

Topic 1: Taylor Approximation Formula
Topic 2: Duration
Topic 3: Convexity
Topic 4: Risk Immunization