Risk Management “…the market risk of an asset has two dimensions: 1) the sensitivity of the asset to movements in a given market factor and 2) changes in the asset’s sensitivity to the factor.” (source: schweser). Question: Is it correct to say 1) is measured by duration and 2) is measured by convexity. Thanks - appreciate your comment.
My interpretation: beta and changes in beta overtime. A stock can have beta of 1.1 today and 1.3 in a year from now.
If the asset is FI then your statement is right. I will say what is the 1st deriviative, and what is the 2nd deriviative?
My Interpretation: Lets say the market factor is GDP 1) Sensitivity of the asset to GDP-lets say its 2 2) Changes in the sensitivity to GDP …Over time the sensitivity might change to 3
Thanks for all your input.