In measuring interest rate risk (duration/convexity), what constitute a large change in yield? Is there a specific threshold in terms of bps by which we can say that the change is large as opposed to it being small? I only saw 10% (small) and 200% bps (large) change when I browsed through the CFAI readings. Thanks in advance for your help.
Je ne sais pas.
Why do you ask?
For some reason, my original question was not posted. Anyway, I only saw 10bps as example for small change in yield and 100-200% for large change when I skimmed through the CFAI readings. Duration is only a good measure of interest rate risk for small change in yield, otherwise, we would need to incorporate convexity adjustment. Hence I want to know if there is a particular threshold by which we can say that the change in yield is large or small. Thanks
There isn’t.
However, they won’t ask you a question where that will matter. They’ll tell you whether to use duration alone, or to use duration and convexity.
My pleasure.