Options effect on Duration/Convexity

I just want to make sure I’m thinking of it the right way.

Long options= positive convexity
Long call= increased duration
Long put= decreased duration

Callable bond= Decreased duration/convexity

Puttable bond= decreased duration/increased convexity

Does this seem correct?

Yes. For the callable/putable bonds, you’re correct when the options aren’t far out of the money. When they’re far out of the money, their duration & convexity are nearly identical to those of straight bonds.

The original exhibit in the 2022 curriculum had half of the convexities wrong. Rather than correct them, they simply removed all of them (the correct and the incorrect ones).


Great thanks for confirming! Yeah the Kaplan material has it wrong & I thought I was going crazy. Glad to know I had it right.

My pleasure.

I’m sure that Kaplan simply copied the original curriculum exhibit.

I tried to get CFA Institute to put in the correct information. I have no idea why they went the route that they did.

Would they just not test on it in that case in your opinion?

They will not test on the convexity of options.