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Positive convexity |
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Positive convexityA property of option-free bonds that the price appreciation for a large downward change in interest rates will be greater (in absolute terms) than the price depreciation for the same downward change in interest rates.Positive convexity Similar MatchesConvexityConvexityProperty that a curve is above a straight line connecting two end points. If the curve falls below the straight line, it is called concave. Negative convexityNegative convexityA bond characteristic such that the price appreciation will be less than the price depreciation for a large change in yield of a given number of basis points. For example, a fixed-rate mortgage may lose value as rates go down because of prepayments. NonconvexityNonconvexityThe property of an economic model or system that sets representing technology, preferences, or constraints are not mathematically convex. Because convexity is needed for proof that competitive equilibrium is efficient and well-behaved, nonconvexities may imply market failures. |
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