No.
The actual convexity is 50. That doesn’t depend on the yield change for which you’re using it. Once again, think density of water: it’s 1g/cc whether you have 1cc or 1,000cc or 10,000,000cc.
The _ effect _ of that convexity on the price change for a 100bp yield change is 50( 0.01 )². Note that you write the yield change as a decimal.
Ok so the same as duration. Calculate effective convexity with whatever yield curve shift you like. But then multiply the convexity of the yield curve shift ^2 to see the total effect.
Is the effect of a duration on the price change for a 30bp yield change is : D * (0.003) ?
Almost.
−D(0.003)
Remember the negative sign.
Thanks
You’re welcome.
@jones473: it’s like calculating the slope of a line as rise over run. If you want to find how many steps to build down to the basement, it doesn’t matter if you measure 5"/12" or 8.5’/ 20.4’, once you find the rise over run you know how steep your stairs will be.
After you build those stairs, you can sit on them and think about how each step is not quite tall enough – it’s hard to walk up them naturally. But then, if you raised each step a tiny bit, and didn’t change anything else, the stairs might rise higher than your kitchen. Well, not if you have like 4 steps. But if you had 99 steps to the basement and raised each step a quarter inch, your stairs would finish two feet above your kitchen floor!
Duration shows that interest rate changes don’t do much when the maturity is short. But with long maturities – 99 steps to the basement – a tiny change to the interest rate affecting the opportunity cost from now till the end will have an amplified impact.
Then, when you stand up, you realize your crappy stairs are sagging deeply, right in the middle – they look like a “C”.
Thanks. One more, am I right that duration measures two things? 1) The bond price sensitivity to a yield change + 2) The effective change in the duration of the bond?
I don’t know what you mean by the second. Do you mean the effective change in the “maturity” of the bond? If so, the answer is an unqualified “No!”
Effective duration is a measure of price sensitivity to yield changes. That’s it.
Yes, it was change in “maturity” i meant. Is not duration also used in that context? Or perhaps that is just ‘duration’ and not 'effective duration?
Macaulay duration? Definitely, “Yes.”
Modified duration? Also, “Yes.”
Effective duration? Unquestionably, “No.”
With Macaulay duration it is clear that it is also used in “maturity” context, as it is always between 0 and the maturity of the bond. However, how is modified duration also used as a measure of the “effective change in maturity”?
Modified duration = Macaulay duration / (1 + YTM)
where YTM means the effective yield to maturity for one coupon period.
Therefore, the longer the time to maturity (all else equal), the longer the modified duration.
Hi All 
I also have a question on the effective duration. As said earlier in this chain, the effective duration of a bond is the bond’s price sensitivity to interest movements. I get that part.
What I don’t understand that how can effective duration be measured in years? In the Reading 37, exhibit 20, the unit of measurement for effective duration is set to years. How is this related to interest rate movements? Can effective duration be measured in two ways?
All durations have units of years.
Effective duration is the percentage change in the bond’s price divided by the change in the YTM. The percentage change in the bond’s price does not have any units (it’s, say, dollars divided by dollars). And while most people think that the change in YTM has no units, they’re mistaken: YTM is percent _ per year _, so the units of YTM are 1/years. When you divide by 1/years, you get years.