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Finance Dictionary and Glossary of Investment Terms
Convexity
Definition 1.
Property that a curve is above a straight line connecting two end points. If the curve falls below the straight line, it is called concave.
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Definition 2.
A measure of the curvature in the relationship between bond prices and bond yields.
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Definition 3.
A volatility measure for bonds used in conjunction with modified duration in order to measure how the bond's price will change as interest rates change. It is equal to the negative of the second derivative of the bond's price relative to its yield, divided by its price. For example, since a non-callable bond's duration usually increases as interest rates decrease, its convexity is positive.
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