2000•Unpublished venueRequires access

Duration and Convexity Method in Forecasting the Interest Rate Risk of Convertible Bond

Fan Xin

Abstract

This paper presents the Duration and Convexity Method in evaluating the interest rate risk of convertible bond. Since the value of convertible bond can be viewed as portfolios of pure common bond and embedded options, we calculate the duration and convexity of both convertible bonds without call provision and those with call provision.

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Key concepts: Convertible bond, Convexity, Convertible, Embedded option, Bond, Convertible arbitrage, Duration (music), Bond valuation