according schweser quicksheet, % Δvalue = -MDΔy
my question is why the second part of the formula +1/2convexity*Δy^2 not needed?
If duration and convexity is given then you should add the term:
\frac{1}{2} \times Convexity \times (\Delta yield)^2
If the convexity is not given then stick to just:
-MD \times (\Delta yield)
Apparently they decided to use only the duration approximation.
Some people do.
Others use duration and convexity.
On the exam, if they want you to approximate the price change, they’ll make it clear whether they want you to use only duration or else both duration and convexity.
Note that if they give you both modified duration and effective duration (and they’re different), make sure that you use effective duration, not modified duration.
1 Like
…This is to fulfill the 10 word count.
I use this:
(They call it a racehorse. In fact, it’s an Arabian horse, much like the ones we used to have. You can tell by the tail. What’s most important here, however, is that it’s 11 characters.)
The racehorse is worth 11 characters??
Oh right. 10 characters, not 10 words.