Language Reference |
CONVEXIT Function |
The CONVEXIT function computes and returns a scalar that contains the convexity of a noncontingent cash flow. The arguments to the CONVEXIT function are as follows:
is an -dimensional column vector of times. Elements should be nonnegative.
is an -dimensional column vector of cash flows.
is the per-period yield-to-maturity of the cash-flow stream. This is a scalar and should be positive.
Convexity is essentially a measure of how duration, the sensitivity of price to yield, changes as interest rates change:
Under certain assumptions, the convexity of cash flows that are not yield-sensitive is given by
where is the present value, is the effective per-period yield-to-maturity, is the number of cash flows, and the th cash flow is periods from the present.
The following statements compute the convexity of a noncontingent cash flow.
timesn = T(do(1, 100, 1)); flows = repeat(10, 100); ytm = 0.1; convexit = convexit(timesn, flows, ytm); print convexit;
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