convexity and duration formulas.

i’ve forgotten them since level 1. i don’t think i have run into any questions that directly asks to calcuate these for level 2 do all of you guys have these memorized from level 1? if not, are you going to memorize them? the answer is yes, but i needed a kick in the a$$.

nah, I just know the general convexivity curve…memorize effective duration think thats as much as you need to know and the general effect of adding convexivity. The convexity just tries to incorporate the curvature of the curve because effective duration only makes a linear approximation (which is acceptable for I think up to 50 basis points)

yeah, i definitely know the concepts. and you need to know them for the types of questions they will ask. but i’m wondering if they will ask a question like: here are the inputs, wha tis the effective duration. i’ll memorize the effective duration one. i’m just being lazy. i’m so ready to take this thing and get it over with.

I would know duration and the formula for the % change with duration and convexity. I don’t have a clue about convexity other than it looks somewhat similar to effective duration.

yea, i’m just memorizing the effective duration. the convexity one is too much in my opinion.

they are the same, only ‘effective’ and not theoretical cash flows are used

the formulas are fairly close to one another…if you memorize one might as well get the other…they’re not bad when you think them through a bit

Convexity = [(V+) + (V-) - 2*Vo] / (2*Vo*deltaY^2) Duration = [(V-) - (V+)] / (2*Vo*deltaY) That’s all you need to remember

NOOOO you should remember them! 1 question asked for convexity calculation last year and I was extremely surprised!